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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-10779
MARVEL ENTERTAINMENT GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3024816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
387 PARK AVENUE SOUTH, NEW YORK, NY 10016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-696-0808
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
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Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
The aggregate market value of the issued and outstanding shares of Common
Stock of the registrant held by non-affiliates was $47,953,163 based on the
closing price of the Company's Common Stock on March 27, 1997. As of March 27,
1997, there were 101,809,657 shares of the registrant's Common Stock, par value
$.01 per share, outstanding, of which 82,628,392 shares are held by indirect
wholly owned subsidiaries of Mafco Holdings Inc.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its 1997 annual meeting of
stockholders is incorporated by reference into Part III of this Form 10-K.
If such proxy is not so filed, such information will be filed as an amendment
to the Form 10-K.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
GENERAL
The Company is a leading creator, publisher and distributor of youth
entertainment products for domestic and international markets based on
fictional action adventure characters owned by the Company (the "Marvel
Characters"), licenses from professional athletes, sports teams and popular
entertainment characters and other properties owned by third parties. The
Company also licenses the Marvel Characters and properties for consumer
products, television and film projects, on-line and interactive software, and
advertising promotions.
The Company's operations consist of (i) the publication and sale of
comic books and other children's publications, (ii) consumer products, media
advertising, promotions and licensing of Marvel Characters, (iii) the marketing
and distribution of sports and entertainment trading cards and activity sticker
collections, (iv) the design, marketing and distribution of toys, and (v) the
manufacture and distribution of adhesives and confectionery products.
BACKGROUND
Marvel Entertainment Group, Inc. ("Marvel" and together with its
subsidiaries, the "Company") was incorporated on December 2, 1986, in the State
of Delaware. Marvel (Parent) Holdings Inc. ("Parent Holdings"), is an indirect
wholly owned subsidiary of Andrews Group Incorporated ("Andrews Group"), a
wholly owned subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews
Holdings"), a corporation wholly owned through Mafco Holdings Inc. ("Mafco" and
together with MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O.
Perelman. Mafco beneficially owned approximately 81.2% of the common stock, par
value, $.01 per share ("Common Stock"), of the Company as of December 31, 1996.
REORGANIZATION
Although the Company's consolidated net revenues have increased
through 1995 as a result of diversification into lines of business other than
comic book publishing, certain significant and long-term changes in market
conditions associated with the Company's publishing and trading cards
businesses have significantly and adversely affected the Company's net revenues
and operating results in recent periods.
The Company experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the Credit
Agreements (as defined below, see Note 5 of "Notes to Consolidated Financial
Statements") beginning in the Fall of 1996. The Company commenced discussions
in the Fall of 1996 with Andrews Group, its indirect parent, regarding an
equity infusion in order to provide for the Company's cash requirements and
with The Chase Manhattan Bank, agent bank for the Credit Agreements, regarding
a restructuring of the Credit Agreements.
On December 27, 1996, Marvel along with certain of its operating and
inactive subsidiaries, Fleer Corp. ("Fleer"); SkyBox International, Inc.
("SkyBox"); Marvel Characters, Inc.; Heroes World Distribution, Inc. ("Heroes
World"); The Asher Candy Company; Malibu Comics Entertainment, Inc. ("Malibu");
Frank H. Fleer Corp. and Marvel Direct Marketing Inc. (along with Marvel, the
"Debtor Companies") filed petitions for relief and a plan of reorganization
under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the District of Delaware. Panini
S.p.A. ("Panini"), Marvel Restaurant Venture Corp. ("Marvel Restaurants") (a
general partner in the Joint Venture developing the Marvel Mania restaurants
(each as defined below), see "Business -- Strategic Initiatives -- Marvel
Mania") and Toy Biz, Inc. ("Toy Biz"), all of which are active, as well as
certain inactive subsidiaries did not file petitions under the Bankruptcy Code.
The Plan of Reorganization, filed on December 27, 1996 (as amended,
the "Plan"), contemplated that pursuant to the Stock Purchase Agreement dated
December 26, 1996, between Andrews Group and Marvel, Andrews Group, or an
affiliate thereof, would acquire from Marvel, a number of shares of Common
Stock (or its equivalent) that would represent 80.1% of the shares of
reorganized Marvel after giving effect to such acquisition, in consideration
for $365 million in cash or, at the option of Andrews Group, shares of class A
common stock, par value
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$.01 per share of Toy Biz (the "Class A Common Stock") or a combination of the
foregoing (the "Andrews Investment"). The Plan contemplated that in connection
with the Andrews Investment, the Company would acquire the Class A Common
Stock not owned by Marvel, Andrews Group or their affiliates pursuant to a
Merger Agreement between Andrews Group and Toy Biz and a Stock Purchase
Agreement with the two other principal stockholders of Toy Biz. The Plan also
contemplated a new $160 million credit facility for Toy Biz to be used for
working capital purposes of the Company, including Toy Biz, and to fund the
Company's strategic initiatives. See "Business --Strategic Initiatives." As of
March 27, 1997, the Company owned 7,394,000 shares of class B common stock of
Toy Biz (the "Class B Common Stock"), representing 26.6% of the equity of Toy
Biz, and 78.4% of the voting power relating to Toy Biz. This plan has since
been withdrawn as described below.
The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including salaries,
wages and benefits to all of its employees, trade creditors and independent
contractors and to continue funding its strategic initiatives. On January 24,
1997 the Bankruptcy Court approved a $100 million debtor-in-possession
financing facility (the "DIP Loan"), which is provided by a syndicate of
lenders, including The Chase Manhattan Bank, as agent bank, and is available to
the Company until June 30, 1997. The DIP Loan is subject to covenants and
events of default including a change of control of Marvel (as defined therein).
See Note 5 of "Notes to Consolidated Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
In 1993, Marvel Holdings Inc. ("Marvel Holdings") issued $517,447,000
principal amount at maturity of Senior Secured Discount Notes due 1998. In
1993, Parent Holdings issued $251,678,000 principal amount at maturity of
Senior Secured Discount Notes due 1998 (the "Parent Holdings Notes"). In 1994,
Marvel III Holdings Inc. ("Marvel III" and collectively with Marvel Holdings
and Parent Holdings, the "Marvel Holding Companies") issued $125 million
principal amount of 9-1/8% Senior Secured Notes due 1998 (the "Marvel III
Notes"). Marvel Holdings and Parent Holdings have, in the aggregate, pledged
77,302,326 shares of the Company's common stock to secure such notes (the
"Pledged Common Stock"), and an additional approximately 2.9 million shares are
subject to a negative pledge under the indenture to the notes issued by Marvel
Holdings. In addition, Parent Holdings has pledged the common stock of Marvel
Holdings to secure the Parent Holding Notes, and Marvel III has pledged the
common stock of Parent Holdings to secure the Marvel III Notes (collectively
with the Pledged Common Stock, the "Pledged Stock").
On December 27, 1996, the Marvel Holding Companies filed voluntary
petitions for relief under chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court for the District of Delaware. The chapter 11 cases
commenced by the Marvel Holding Companies have not been procedurally
consolidated and are not jointly administered with the Debtor Companies'
chapter 11 cases.
On January 9, 1997, the United States Trustee appointed a committee of
creditors holding unsecured claims against the Marvel Holding Companies (the
"Creditors Committee") under section 1102(a) of the Bankruptcy Code. The
members of the Creditors Committee, as originally appointed, include: The Bank
of New York, High River Limited Partnership, Westgate International, L.P.,
Schultz Investments, WHERCO, Inc., M3, LLC and United Equities Commodities
Company.
On January 13, 1997, the Creditors Committee filed a motion (the "Stay
Relief Motion") in the Holdings Companies' chapter 11 cases seeking (i) relief
from the automatic stay to permit LaSalle National Bank, as successor indenture
trustee (the "Holding Companies' Trustee"), on behalf of the holders of the
notes issued by the Marvel Holding Companies, to foreclose upon, and vote, the
Pledged Stock and (ii) dismissal of the Marvel Holding Companies' chapter 11
cases. On February 26, 1997, the Bankruptcy Court entered an order granting
relief from the automatic stay to allow the Holding Companies' Trustee to vote
and to foreclose upon the Pledged Stock. On February 27, 1997, the Company and
the Marvel Holding Companies filed a notice of appeal with respect to such
order.
On February 12, 1997, the Office of the United States Trustee
appointed a committee of equity security holders of the Debtor Companies under
section 1102(a)(1) of the Bankruptcy Code (the "Equity Committee"). The Equity
Committee presently consists of: Barclay's Global Investors, Marty Solomon,
Robert A. Della Camera, Peter E. Kelly, Jr., Gladys V. Veidemanis and Ronald
Cantor.
On March 7, 1997, Andrews Group exercised its right to terminate the
Stock Purchase Agreement with the Company. On the same date, Andrews Group
informed Toy Biz and the two principal stockholders of Toy Biz that, as a
result of the termination of the Andrews Investment, a condition to closing
under the Merger Agreement with
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Toy Biz and the Stock Purchase Agreement would not be satisfied, that Andrews
Group did not intend to waive the satisfaction of such condition and therefore
the transaction contemplated by such agreements would not be consummated.
On March 7, 1997, the Creditors Committee indicated that it would make
a proposal whereby the holders of Common Stock (other than Mafco and its
affiliates) and holders of the notes of the Marvel Holding Companies would make
a $365 million infusion into the Company as part of a new Plan of
Reorganization through a rights offering that would be backstopped by certain
members of the Creditors Committee, including an entity controlled by Carl
Icahn (the "Icahn Group") (as subsequently amended, the "Committee Proposal").
The Committee Proposal did not specify whether all of the $365 million would be
added to the equity of the Company or whether a portion of the proceeds would
be used to repay borrowings under the Credit Agreements, and does not
contemplate Toy Biz becoming a wholly owned subsidiary of Marvel. The Committee
Proposal contemplated that prior to confirmation of any plan of reorganization
reflecting the Committee Proposal, the current Board of Directors of the
Company would be replaced by designees of the Creditors Committee. Such
proposal was subject to further negotiations with the Company and the Company's
bank lenders, but an agreement with these entities was never reached.
On March 19, 1997, the Creditors Committee notified the Company that
on March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of the Company and the Holding
Companies. On March 24, 1997, the Court in the Debtor Companies' bankruptcy
cases issued a restraining order preventing the Creditors Committee and the
Holding Companies' Trustee from voting the Pledged Stock or otherwise replacing
the Board of Directors of the Company and determined that the Creditors
Committee and the Holding Companies' Trustee must comply with the procedural
requirements of section 362 of the Bankruptcy Code to seek relief from the
automatic stay to take such action. The Court, however, also ruled that the
Creditors Committee and Holding Companies' Trustee could replace the Board of
Directors of Marvel Holdings and Parent Holdings. On March 28, 1997, the
Creditors Committee and the Holding Companies' Trustee filed a motion to lift
the automatic stay in the Debtor Companies' cases in order to permit the
Creditors Committee and the Holding Companies' Trustee to replace the Board of
Directors of Marvel. A hearing date on such motion has been set for
May 14, 1997. On the same date, the Creditors Committee filed an emergency
appeal of the restraining order of the Bankruptcy Court issued on
March 24, 1997 preventing the replacement of the Board of Directors of Marvel.
A briefing schedule has been set for the emergency appeal and a hearing date
for such appeal has been set for May 1, 1997.
There can be no assurance that any plan of reorganization under the
Bankruptcy Code reflecting the Committee Proposal or a proposal made by any
other party will be proposed, or that if a plan is proposed, such plan of
reorganization will be confirmed under the Bankruptcy Code.
If the Company is unable to obtain confirmation of a plan of
reorganization, its creditors or equity security holders may seek other
alternatives for the Company, including bids for the Company or parts thereof
through an auction process.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - - Liquidity and Capital Resources" and "Legal
Proceedings".
PUBLISHING
COMICS
The Company is the largest creator and publisher of comic books in
North America and, through Panini, the Company publishes comic books in Italy,
the United Kingdom and certain other parts of Western Europe. The Company,
through Panini, also licenses the publication of comic books based on other
Marvel Characters throughout the world.
The Company has been publishing comic books since 1939 and has
developed a roster of more than 3,500 Marvel Characters, including the
following popular Marvel Characters: SPIDER-MAN; X-MEN (including WOLVERINE,
NIGHTCRAWLER, COLOSSUS, STORM, CYCLOPS, BISHOP and GAMBIT); CAPTAIN AMERICA;
FANTASTIC FOUR (including MR. FANTASTIC, HUMAN TORCH, INVISIBLE WOMAN and
THING); INCREDIBLE HULK; THOR; SILVER SURFER; DAREDEVIL; IRON MAN; DR. STRANGE
and GHOST RIDER. The Company's Marvel SUPER HEROES exist in the "MARVEL
UNIVERSE," a fictitious universe which provides a unifying historical and
contextual background for the storylines. The Company's titles feature classic
Marvel SUPER HEROES and X-MEN, newly developed Marvel Characters and characters
created by
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other entities and licensed to the Company, and, as a result of its 1994
acquisition of Malibu, Malibu's "ULTRAVERSE" characters.
In developing comic books, the Company targets particular age groups
or types of readers. Currently in development are young children's products
such as EASY TO READ, MY FIRST MARVEL and Marvel coloring books. Certain of the
Marvel Characters such as X-MEN are aimed at readers at the older end of the 4
to 17 year-old age group. Established readership of the Company's comic books
also extends to the 18 to 35 year-old age group.
The Company's approach to super heroes is a contemporary drama based
on real people with real problems. This enables the characters to evolve,
remain fresh, and, therefore, attract and retain new readers in each succeeding
generation. The "Marvel Universe" concept permits the Company to use the
popularity of its Marvel Characters to introduce a new character in an existing
Marvel SUPER HEROES or X-MEN comic or to develop more fully an existing but
lesser known character. In this manner, formerly lesser known Marvel Characters
such as PUNISHER and WOLVERINE have been developed and are now popular
characters in their own right and are featured in their own monthly comic
books. The "Marvel Universe" concept also allows the Company to use its more
popular characters to make "guest appearances" in the comic books of
lesser-known or newer characters to attempt to increase the circulation of a
particular issue or issues.
MARKET
The Company's primary target market for its comic books is children
and teenagers in the 10 to 17 year old age group, however, the majority of the
Company's readers currently are teenagers and young adults. There are two
primary types of purchasers of the Company's comic books. One is the
traditional purchaser who buys comic books like any other magazine. The other
audience is the reader-saver who purchases comic books, typically from a comic
book specialty store, and maintains them as part of a collection.
CREATIVE AND PRODUCTION PROCESS
The Company's full-time editorial staff consists of an
editor-in-chief, two executive editors and approximately eighteen editors,
associate editors and assistant editors who oversee the quality and consistency
of the artwork and editorial copy and manage the production schedule of each
issue. The production of each issue requires the editors to coordinate over a
six month period the activities of a writer, a pencil artist, an inker, a
colorist and a printer. The majority of this work is performed by third parties
outside of the Company's premises.
The artists and writers include freelancers who generally are paid on
a per-page basis. They are eligible to receive incentives or royalties based on
the number of copies sold (net of returns) of the comics books in which their
work appears. The Company has entered into agreements with certain artists and
writers under which such persons have agreed to provide their services to the
Company on an exclusive basis, generally for a period of one to three years,
and generally begin to expire in 1997. These contracts were entered into when
the comic book market was stronger and in light of the decline in the comic
book market, the Company will seek to renew these contracts with more favorable
terms.
The creative process begins with the development of a story line. From
the established story line, the writer develops a character's actions and
motivations into a plot. After a writer has developed the plot, the pencil
artist translates it into an action-filled pictorial sequence of events. The
penciled story is returned to the writer who dialogues it, indicating where the
balloons and captions should be placed. The completed dialogue and artwork are
forwarded to a letterer who letters the dialogue and captions in the balloons.
Next, an inker enhances the pencil artist's work in order to give the drawing
three-dimensionality.
The artwork is then sent to a coloring artist. Typically using only
four colors in varying shades, the color artist uses overlays to create over
100 different tones. This artwork is subcontracted to a color separator who
produces separations and sends the finished material to the printer.
Unaffiliated entities produce color separations and print all of the Company's
comic books. The Company currently uses several color separators and two
printers to produce its comic books.
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DISTRIBUTION
The Company's publications are distributed through three channels:
(i) to comic book specialty stores on a nonreturnable basis (the "direct
market"), (ii) traditional retail outlets on a returnable basis (the "retail
returnable market") and (iii) on a subscription sales basis.
Net publishing revenues were $103.1 million, $147.7 million and $129.4
million for the years ended December 31, 1996, 1995 and 1994, respectively. The
increase in revenues from 1994 to 1995 primarily relates to revenues from
Heroes World, the Company's comic book direct market distribution subsidiary,
which was purchased in December 1994 and subsequently closed (as described more
fully below). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
Overall industry comic book sales declined primarily as a result of
reduced readership, lower speculative purchases and lower selling prices, which
in turn caused a contraction in the number of comic book specialty stores. The
decrease in the overall comic book business has resulted in a decrease in the
number of, and has negatively affected the financial condition of, the comic
book specialty stores, which has further negatively impacted the Company's net
publishing revenues.
For the year ended December 31, 1996, approximately 62.6% of net
publishing revenues were derived from sales to the direct market. In 1995 and
1996, the Company exclusively distributed its publications through Heroes
World. In this time period, however, the comic book direct market and the
Company's sales in such market have continued to decline. In light of such
declines and related inefficiencies at Heroes World, in late 1996 the Company
decided to close Heroes World and in early 1997 the Company entered into an
agreement with an unaffiliated entity to service specialty market retailers and
direct market comic book shops. The Company believes that in the event of a
termination of this agreement the Company will be able to provide service to
its customers and that any such termination would not have a long-term material
adverse effect on its publishing business.
For the year ended December 31, 1996, approximately 24.6% of the
Company's net publishing revenues were derived from sales to the retail
returnable market and 9.5% of net publishing revenues were through a single
unaffiliated distributor. The retail returnable market consists of
approximately 50,000 traditional periodical retailers such as newsstands,
convenience stores, drug stores, supermarkets, mass merchandise and national
bookstore chains. The distributors sell the Company's publications to
wholesalers, who in turn sell to the retail outlets. The Company issues credit
to these distributors for unsold and returned copies. Distribution to national
bookstore chains is accomplished through a separate distributor. The Company
believes it could obtain comparable services from other distributors in the
retail returnable market should such replacement become necessary or desirable.
For the year ended December 31, 1996, approximately 5.5% of the
Company's net publishing revenues were derived from subscription sales.
Subscription copies of the Company's publications are mailed for the Company by
an unaffiliated subscription fulfillment service.
For the year ended December 31, 1996, approximately 7.3% of the
Company's net publishing revenues were derived from advertising sales. In most
of the Company's comic publications, ten pages (three glossy cover pages and
seven inside pages) are allocated for advertising. The products advertised
include sports and entertainment trading cards, video games, role playing
games, movies, candy, cereals, toys, models and other consumer packaged goods.
The Company permits advertisers to advertise in a broad range of the Company's
comic publications which target specific groups of titles that have a younger
or older readership.
CONSUMER PRODUCTS, MEDIA AND ADVERTISING-PROMOTION LICENSING
The Company's consumer products, media and advertising-promotion
licensing operations are organized in several areas: the licensing of or joint
ventures involving the Marvel Characters for use with (i) merchandise, (ii)
promotions, (iii) publishing, (iv) television and film, (v) on-line and
interactive software and (vi) restaurants, theme parks and site-based
entertainment. The Company's licensees sell the Company's character-based
products through their normal distribution channels and occasionally in
specialty comic book stores. The Company's characters appear on hundreds of
items, including shirts, shoes and a myriad of other types of apparel, gifts,
toys and games, software, housewares and domestic items and consumer packaged
goods. The Company generally receives a percentage of wholesale sales as a
royalty including a guarantee of minimum royalties, and an advance against
royalties upon execution of a license agreement. The Company also licenses the
Marvel Characters for the production of television programs and feature films
and for use in theme parks.
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The Company, through Panini, also enters into publishing license
agreements with international publishers for the publication of comic and
non-comic books employing the Company's titles and the Marvel Characters and
third party titles and characters in approximately 50 countries and 19
languages. The Company receives a percentage of the publishers' revenues as a
royalty. The Company also acts as an agent for third party owners of characters
seeking to obtain licensing opportunities for their characters.
For the year ended December 31, 1996, the revenue from consumer
products, media and advertising-promotions licensing comprised 2.5% of the
Company's consolidated net revenues.
MARVEL STUDIOS
To enhance further the media exposure of the Marvel Characters, the
Company and Toy Biz intend to form Marvel Studios, although documentation
relating to such formation has not been finalized (and pending such formation,
Marvel Studios is being operated as a division of the Company). The objective
of Marvel Studios is to facilitate the release of live action and animated
feature films and television programming, and other media based on the Marvel
Characters in order to create greater consumer interest in the Marvel
Characters and related merchandise. The Company believes that any feature film
or television programming, theatrical productions or other media and any
advertising and promotion associated with such media will create consumer
interest in the Marvel Characters and revenue opportunities for the Company's
licensing and toy businesses. For example, the Company believes that the
popularity of the X-MEN and SPIDER-MAN animated television shows have resulted
in significant increases in net sales by Toy Biz of X-MEN and SPIDER-MAN toys.
The Company believes that Marvel Studios will facilitate the release of feature
films, television programming and other media by giving the Company greater
control over the development of such projects compared to the present practice
of only licensing the use of the Marvel Characters in film or television
projects to an unrelated third party. See "Strategic Initiatives -- Marvel
Studios".
INTERACTIVE MEDIA
During 1996, the Company formed Marvel Interactive for the development
of on-line services and interactive software utilizing or based upon the Marvel
Characters. For a further description of these matters, see "Strategic
Initiatives -- Marvel Interactive."
RESTAURANTS
The Company, through Marvel Restaurants, a wholly owned subsidiary of
Marvel, has formed a joint venture (the "Joint Venture") with Planet Hollywood,
Inc. ("PHI") for the development of Marvel theme restaurants based on the
Marvel Characters ("Marvel Mania"). Three restaurants are currently
contemplated, with the first restaurant expected to open in the second half
of 1997. For a further description of these matters, see "Strategic
Initiatives-- Marvel Mania."
SPORTS AND ENTERTAINMENT TRADING CARDS; CHILDREN'S ACTIVITY STICKERS
In April 1995, the Company acquired SkyBox and merged its operations
with the existing trading card operations of Fleer (collectively,
"Fleer/SkyBox"). Fleer/SkyBox is a leading marketer of sports and entertainment
trading cards. Fleer/SkyBox is best known for its sports trading cards
depicting professional athletes and sports teams, including professional
baseball, basketball, football and hockey players competing in Major League
Baseball, the National Basketball Association, the National Football League and
the National Hockey League and NASCAR drivers. Sports trading cards feature
pictures of professional athletes and generally include statistical and
biographical information about the pictured athletes. The Company's ability to
produce, market, and sell its sports trading cards is dependent upon the
continual renewal of license agreements with the organizations representing the
players and owners of the baseball, basketball, football and hockey players,
teams and leagues. These licenses are non-exclusive and generally are granted
for a two to four year period. In addition, Fleer/SkyBox manufactures and
distributes entertainment trading cards using the Company's classic SUPER
HEROES characters as well as characters based on other licensed properties,
such as The Hunchback of Notre Dame and Hercules of the Walt Disney Company,
Time Warner's Batman and Robin and Paramount's Star Trek. The Company's trading
card operations have been and continue to be negatively affected by the general
contraction in the sports and entertainment trading card markets and the
baseball, hockey and basketball labor situations. The Company is required to
make minimum royalty and advertising payments under the license agreements
related to sports and entertainment trading cards. Generally, these licenses
were executed when the trading card market was larger and the Company's trading
card net revenues were higher as compared to
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actual 1996 net revenues. Hence, as a result of the minimum royalty and
advertising commitments, declines in the Company's trading card net revenues
significantly and adversely affect the profitability of the trading card
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Panini is the largest manufacturer and distributor of sports and
entertainment sticker collections in the world, with a substantial portion of
its business conducted in Western Europe. Panini produces and distributes
stickers, which are pictures on self-adhesive paper designed primarily to be
collected and placed in albums. Panini maintains a broad portfolio of licenses
for characters or themes on which the stickers are based. Panini's prominent
position in the sticker industry has enabled it to secure many desirable
licenses, including exclusive and non-exclusive agreements with many sporting
federations and with major entertainment licensors such as Disney, Time Warner
and Mattel. Collections produced by Panini feature professional athletes and
teams in sports such as soccer (primarily athletes and teams competing in the
major European and Brazilian soccer leagues, including those competing in the
World Cup and European Cup competitions), baseball, basketball and hockey;
Disney characters such as 101 Dalmatians; variety characters and themes, such
as Mattel's Barbie, D.C. Comic's Batman and the Company's X-MEN; and other
characters popular in local European markets. Licenses generally are for a term
of one to three years and provide for minimum guaranteed royalty payments.
There have been significant improvements to self-adhesive stickers in recent
years with innovations such as the use of vinyl and foil paper and textured
surfaces.
Although there can be no assurance that, in the future, new licenses
for the Company's sports and entertainment trading card and sticker business
will be granted to the Company upon the expiration of the current licenses, the
Company anticipates that it will obtain new licenses generally on terms
acceptable to it. In the future, the Company intends to seek to negotiate lower
royalty guarantees and advertising commitments relating to its existing trading
card licenses, although there can be no assurance that any such negotiations
will be successful. The Company considers its relationships with its licensors
to be good. For additional information relating to these matters, see
subsection entitled "License Agreements and Trademarks."
MARKET
Although the Company's sports and entertainment trading cards have
marketing categories and consumer profiles similar to those in the publishing
market, a significant portion of Fleer/SkyBox sales are made to a subset of the
market consisting of serious collectors. Panini sells its sticker collections
primarily to children between the ages of 4 and 14 in Western European markets.
During the year ended December 31, 1996, sales in Italy, France, Germany, Spain
and Brazil accounted for a substantial majority of Panini's children activity
sticker collection net revenues.
PRODUCTION PROCESS
Photographs used for the Company's sports trading cards are usually
taken by independent photographers under contract with the Company or by the
organizations representing the respective leagues and their member teams.
Artwork used for Company's entertainment trading cards is developed from actual
medium (i.e movies and comic books) or created by in-house and freelance
artists some of whom create artwork for the Company's comic books. Design and
coordination of the artwork is handled by the Company's staff of artists.
Independent contractors print, cut, collate and wrap the trading cards. Quality
enhancements include dual-sided gloss coating and color corrected photography.
Additional enhancements of Fleer/SkyBox premium brand cards utilize high-gloss
ultraviolet coatings and gold foil stamping and super premium brand cards
utilize additional high-gloss clear plastic laminates and gold foil stampings,
heavier card stock and improved colorization.
Most of the manufacturing processes required in the production of
Panini's sticker collections, including self-adhesive paper production, film
layout, printing and packaging of the finished product are conducted in
Panini's own facilities, in Modena, Italy and Sao Paolo, Brazil,. These
manufacturing activities are supported by the Company's editorial, art, studio
and photo lithography staff. Panini has separate production facilities for
stickers and self-adhesive paper in Modena, Italy and Sao Paolo, Brazil.
DISTRIBUTION
The Company's sports and entertainment trading cards are distributed
through two channels: (i) to trading card specialty stores and (ii) through
mass merchandisers, price clubs and newsstand retail outlets (the "mass
market"). As a result of market conditions, the Company has revamped its
trading card business such that distribution of its trading card products is
concentrated in trading card specialty stores and selected mass market
accounts. In addition, the Company is testing a merchandising initiative to
place fixtures in mass market outlets with high traffic in order to
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simplify buying and attract purchasers (see "Strategic Initiatives --Trading
and Entertainment Cards"). The Company's sports and entertainment trading
cards are distributed primarily in the United States and Canada. The Company
distributes its trading cards internationally primarily through Panini in most
of the world and through third-party distributors in Japan, Australia and New
Zealand.
Since 1994, the Company believes that the overall trading card market
has declined by approximately 40%, which has resulted in a substantive decrease
in the Company's trading card revenues. The decrease in the overall trading
card market has decreased the number of, or has negatively affected the
financial condition of, the trading card specialty stores, thereby negatively
impacting the Company's trading card revenues.
Panini sells sticker packs and collection albums through newsstands,
confectioners and other retail locations. Panini sells primarily to national
and local third-party distributors in other countries where it markets its
products.
For the year ended December 31, 1996, approximately 45% of the
Company's net sports and entertainment trading card revenues were derived from
sales through numerous unaffiliated distributors to specialty collectible
shops. None of the unaffiliated distributors individually represented a
significant percentage of the Company's net sports and entertainment trading
card revenues for 1996. The Company estimates that there are approximately
3,500 to 4,000 specialty collectible shops which are primarily located in the
United States and Canada. The Company believes that one or more of its existing
distributors or others could replace any of the Company's other distributors
should such replacement become necessary or desirable.
For the year ended December 31, 1996, approximately 49% of the
Company's net sports and entertainment trading card revenues were derived from
sales to the mass market.
For the year ended December 31, 1996, substantially all of the
Company's children's activity sticker collection net revenues were derived from
sales to the retail returnable market, of which approximately 55.0% were
through three unaffiliated distributors.
Total sports and entertainment trading card and children's activity
sticker revenues were $301.1 million, $357.9 million and $282.6 million in
1996, 1995 and 1994, respectively.
TOYS
The Company presently owns a 26.6% equity interest in Toy Biz
representing, through its Class B Common Stock, 78.4% of the voting power. Toy
Biz is a toy entertainment company that designs, markets and distributes a
diverse product line comprised of boys' and girls', infant/pre-school and
activity toys in the United States and internationally, based on popular
entertainment properties, consumer brand names and proprietary designs. The
Company licenses to Toy Biz more than 3,500 Marvel Characters on an exclusive,
perpetual, and royalty-free basis, subject to certain limitations, for use in a
broad range of toys. Toy Biz capitalizes on the popularity generated by the
media exposure of certain of the Company's characters, such as X-MEN and
SPIDER-MAN by emphasizing those characters in its toy lines. Toy Biz also has
licenses to manufacture certain toy products based on non-Marvel Characters
depicted in television programs such as Hercules: The Legendary JourneysTM,
Xena: Princess WarriorTM and Muppet BabiesTM, all of which are broadcast on
network, syndicated or cable television. A number of motion pictures as to
which Toy Biz has obtained licenses to manufacture certain products have been
completed or are in the planning stages. These include a made-for-television
movie entitled Generation XTM, which premiered in prime time on the Fox
Network, for which Toy Biz has manufactured and distributed mainly action
figures, as well as, a feature film entitled Muppet Treasure IslandTM, a
widely distributed first run motion picture, for which Toy Biz has manufactured
and distributed certain plush items. Other motion pictures (both related and
unrelated to the Marvel Characters) for which Toy Biz has obtained licenses to
manufacture certain products, are planned for release by such licensors as The
Walt Disney Company and Universal City Studios, Inc.
The Company believes that media events associated with the characters
on which Toy Biz bases certain of its toy products increase overall consumer
awareness and popularity of these characters and Toy Biz has in part followed a
strategy intended to capitalize on the popularity generated by such media
exposure. Toy Biz has used its success in marketing the Marvel line as a means
of attracting licenses for use of recognized trademarks and brand names such as
Gerber(R), Coleman(R), and NASCAR(R).
During 1996, Toy Biz also continued its efforts to develop toys under
licenses for recognized consumer brands names and other popular characters. Toy
Biz continued to build on its line of dolls and infant and toddler learning
toys
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marketed under the Gerber(R) trademark. Toy Biz continued to develop a line of
children's toys with a camping and outdoor theme sold under the Coleman(R)
trademark. Toy Biz also licensed from NASCAR(R) and several well-known stock
car drivers the rights to manufacture various toy products based upon such
trademarks and personalities.
During 1996, Toy Biz also continued to manufacture and distribute
additional proprietary products in various categories including: Baby Tumbles
Surprise(TM), Baby Headstand Surprise(TM), Baby So Real(TM), Take Care of Me
Twins(TM) and the multi-activity game tables.
Since completing the acquisition of the assets of Spectra Star, Inc.
("Spectra Star(R)") and Quest Aerospace Education, Inc. ("Quest") in 1995, Toy
Biz's specialized activity toy business has continued to grow, with Spectra
Star(R) brand kites comprising a substantial share of United States domestic
kite business, and Quest(TM) brand rockets entering the growing mass
merchandise market and specialty store distribution channels.
Toy Biz's net revenues for 1996, 1995 and 1994 were $221.6 million,
$196.4 million and $156.5 million, respectively. Prior to March of 1995, the
Company reported Toy Biz operations under the equity basis and did not record
Toy Biz net revenues in its consolidated net revenues. In March of 1995, the
Company began to consolidate Toy Biz operations and consolidated $180.2 million
of net revenues for 1995.
CUSTOMERS, MARKETING AND DISTRIBUTION
Toy Biz markets and distributes its products throughout the world with
sales to customers in the United States accounting for approximately 80% of Toy
Biz's net sales in 1996. Outlets for Toy Biz's products in the United States
include specialty toy retailers, mass merchandisers, mail order companies and
variety stores, as well as independent distributors who purchase products
directly from Toy Biz and ship them to retail outlets. Toy Biz's five largest
customers include Toys `R' US, Inc., Wal-Mart Stores, Inc., Kmart Corporation,
Target Stores, Inc., a division of Dayton-Hudson Corp. and Kay-Bee Toys, a
division of Consolidated Stores, Inc. which customers accounted in the
aggregate for approximately 74.8% of Toy Biz's domestic gross sales and 59.6%
of Toy Biz's total sales in 1996. Toy Biz's products currently are sold outside
the United States through independent distributors by its Hong Kong subsidiary,
under supervision of Toy Biz's management. Toy Biz's international product line
generally includes products currently or previously offered in the United
States, packaged to meet local regulatory and marketing requirements.
MANUFACTURING
Toy Biz maintains a product development staff and also obtains new
product ideas from third-party inventors. The time from concept to production
of a new toy can range from six to twenty four months, depending on product
complexity.
Toy Biz relies on independent parties in the People's Republic of
China ("China") to manufacture a substantial portion of its products. The
remainder of its products are manufactured in Mexico or the United States. As a
matter of policy, Toy Biz uses several different manufacturers. By
concentrating its manufacturing among certain manufacturers, Toy Biz thereby
pursues a strategy of selecting manufacturers at which Toy Biz's product volume
qualifies Toy Biz as a significant customer. Toy Biz is not a party to any
long-term agreement with any manufacturer.
While Toy Biz is not dependent on any single manufacturer in China to
supply it with products, Toy Biz is subject to the risks of foreign
manufacturing, including currency exchange fluctuations, transportation delays
and interruptions, and political or economic disruptions affecting
international businesses generally. Toy Biz's ability to obtain products from
its Chinese manufactures is dependent upon the United States' trade
relationship with China. The "Most Favored Nation" status of China, which is
reviewed annually by the United States government is a regular topic of
political controversy. The loss of China's "Most Favored Nation Status" would
increase the cost of importing products from China significantly, which could
have a material adverse effect on Toy Biz. The imposition of further trade
sanctions on China could result in significant supply disruptions or higher
merchandise costs to Toy Biz. Toy Biz believes that alternate sources of
manufacturing are available outside China, although there can be no assurance
that these alternate sources will be available on acceptable terms.
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OTHER PRODUCTS
CONFECTIONERY
Fleer manufactures and markets an array of confectionery products.
Fleer's confectionery operation is best known for its DUBBLE BUBBLE and RAZZLES
gum products. The Company believes that DUBBLE BUBBLE, with origins dating back
to 1928, was the first branded bubble gum sold in the United States. The
Company distributes its confectionery products utilizing substantially the same
distribution channels as those used for sports and entertainment trading cards.
ADHESIVES
Panini distributes self-adhesive paper throughout the world. Through
its Adespan Paper Division, Panini manufactures sheet and reel self-adhesive
paper which is sold to third parties primarily for production of stickers used
in labeling and packaging.
Net revenues from other products were $101.7 million, $90.0 million
and $52.3 million in 1996, 1995 and 1994, respectively.
LICENSES AND TRADEMARKS
The Company believes that its roster of Marvel Characters as well as
its MARVEL trade name represent its most valuable assets and that such roster
could not be easily reproduced. In addition, the Company considers its FLEER,
FLEER ULTRA, FLAIR, NBA HOOPS and SKYBOX trademarks to be of material
importance to its sports picture card business, its PANINI trademark to be of
material importance to its children's activity sticker business and DUBBLE
BUBBLE and RAZZLES trademarks to be of material importance to its confectionery
business. The Company currently conducts an active program of maintaining and
protecting (i) its principal trademarks, including the MARVEL trade name, and
(ii) copyrights on the Marvel characters and publications in the United States
and in approximately 55 foreign countries where such protection is available.
The Company's principal trademarks have been registered in the United States,
certain of the countries in Western Europe and South America, Japan, Israel and
South Africa and, in the case of Panini, in Western Europe and Brazil.
The Company's ability to market its sports trading cards is based on
rights under primarily non-exclusive license agreements with the baseball,
basketball, football and hockey players' associations, and with the
organizations which represent the respective leagues and their member teams.
Generally, the Company's sports picture card licenses provide for
two-to-four-year terms and minimum guaranteed royalty and advertising payments.
The Company's agreements with the various players' associations enable the
Company to use a player's name, picture, facsimile signature and biographical
description. The Company's agreements with the organizations representing the
various leagues and their member teams enable the Company to use the logos and
trademarks of the various sports, the leagues and logos, names and uniforms of
the member teams. As a result of these licenses, the Company is permitted to
produce and sell in the United States and Canada, and most of the rest of the
world, sports picture cards and stickers. All of these licenses are primarily
non-exclusive and, accordingly, the various players' associations, leagues and
team representatives are free to grant similar licenses to other companies. For
additional information relating to this matter, see "Competition."
The Company's sports picture card license agreements generally provide
the licensor with the right to assure the quality of the manufactured products
and the suitability of the manufacturers used by the Company, allow the
licensor to inspect the records relating to licensed products, and set forth
labeling requirements for the licensed merchandise. Such license agreements
generally require annual guaranteed minimum royalty payments and monthly or
other periodic payments of royalty guarantees for royalties in excess of the
guaranteed minimum amounts. The Company also has required minimum advertising
expenditures under its various sports licenses. The sports and entertainment
trading card licenses of Fleer/SkyBox generally provide that it is an event of
default if there is a change of control of Fleer/SkyBox or of Marvel. On
February 26, 1997, the Bankruptcy Court entered an order granting relief from
the automatic stay to allow the Holding Companies' Trustee to vote and to
foreclose upon the Pledged Stock. On February 27, 1997, the Company and the
Marvel Holding Companies filed a notice of appeal with respect to such order.
On March 24, 1997, the Court in the Debtor Companies' bankruptcy cases issued a
restraining order preventing the Creditors Committee and the Holding Companies'
Trustee from voting the Pledged Stock or otherwise replacing the Board of
Directors of the Company and determined that the Creditors Committee and the
Holding Companies' Trustee must comply with the procedural requirements of
section 362 of the
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Bankruptcy Code to seek relief from the automatic stay to take such action.
The Court, however, also ruled that the Creditors Committee and Holding
Companies' Trustee could replace the Board of Directors of Marvel Holdings and
Parent Holdings. If the Holding Companies' Trustee were to foreclose on the
Pledged Stock or exercise voting control over such stock, such action could
cause a change of control of the Company and may cause a default under one or
more of the Fleer/SkyBox's sports and entertainment trading card licenses.
Panini's ability to market its sports sticker products is based on
rights, some of which are exclusive, and some of which are non-exclusive, with
the sports federations and, depending upon the country, the players. Panini's
sticker licenses have various terms and require minimum guaranteed royalties.
Panini's agreements with the various federations and, where applicable, the
players, allow Panini to use the logos and trademarks of the various leagues,
member teams and the player's name, picture, biographical and other
information.
The Company also has various entertainment licenses related to the
trading cards and sticker businesses that require minimum guaranteed royalties
and are otherwise similar to the Company's sports trading card licenses.
Although the Company considers its relationships with its trading card
and sticker licensors to be good, there can be no assurance that such licensors
will grant new licenses to the Company upon expiration of the current licenses.
In the past, renewals of the Company's sports card licenses have required,
among other things, increases in royalty rates and minimum guaranteed royalty
amounts and advertising commitments.
In 1996, Toy Biz produced a majority of its products under licenses
which it has obtained from third parties. Some of these licenses confer rights
to exploit original concepts developed by toy inventors and designers.
Character licenses, such as the exclusive, perpetual and royalty-free license,
subject to certain limitations from Marvel (the "Marvel License"), permit Toy
Biz to manufacture and market toys based on characters owned by others which
have or develop their own popular identity, often through exposure in various
media such as television programs, movies, cartoons and books. Other licenses,
referred to as trademark or brand name licenses, permit the Company to produce
toys bearing the recognized consumer trademark or brand name owned by the
licensor. In return for these rights (other than those under the Marvel
License), Toy Biz pays royalties to its licensors.
Royalties paid by Toy Biz to licensors and investors are typically
based on a percentage of net sales. Most licenses extend for one to three years
and are renewable at the option of Toy Biz upon payment of minimum guaranteed
payments or the attainment of certain sales levels during the initial term of
the license. In the future, royalty rates and minimum guaranteed payments may
increase or decrease depending upon various competitive forces in the toy
industry.
EMPLOYEES
As of March 15, 1997, the Company employed approximately 1,400
persons. The Company also contracts for creative work on an as-needed basis
with approximately 550 freelance writers and artists.
Certain of the Company's manufacturing employees are represented by a
union pursuant to a collective bargaining agreement which expires in June 1999.
The Company believes that its relations with its employees are
satisfactory.
COMPETITION
The comic book and sports and entertainment trading card industries
are highly competitive. The Company competes with over one hundred publishers
in the United States. There are numerous companies licensed to produce sports
and entertainment trading cards, other than entertainment trading cards based
on the Marvel's Characters, some of which sell their products only in regional
or niche markets. In addition, licenses may be granted to other companies to
produce sports and entertainment trading cards in the future, thus generating
greater competition.
Panini, as a leader in the development of the sticker industry,
generally enjoys a pre-eminent position in each of the countries in which it
operates. The major competitors of Panini are generally regional companies. The
Company believes that Panini's competitive advantages are its reputation for
quality stickers, its long standing relationship with licensors and its strong
distribution capabilities. Panini does, however, compete for the discretionary
spending of children with other forms of youth entertainment.
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The toy industry is highly competitive, and Toy Biz competes with many
larger toy companies in the design and development of new toys, the procurement
of licenses and for adequate retail shelf space of its products. Such
competitors include Hasbro, Inc., Mattel Inc., Tyco Toys, Inc, Playmates, Inc.
and Bandai Co., Ltd. Toy Biz considers Just Toys, Inc., Lewis Galoob Toys,
Inc., Empire of Carolina, Inc. and Ohio Art Co. to be among its competitors as
well.
Some of the Company's competitors such as D.C. Comics are part of
integrated entertainment companies and may have greater resources than the
Company. The Company also faces competition from other entertainment media,
such as movies and video games, but believes that it benefits from the low
price of comic books, sports and entertainment trading cards and children's
activity sticker collections in relation to such other products.
SEASONALITY
The Company sells sports trading cards throughout the year in all
major sports. Sales of the Company's sports trading cards peak at or near the
beginning and mid-point of the sports season to which a specific product
relates. Sales of entertainment related products tend to be less seasonal,
although sales of products related to a motion picture or animated series are
generally planned to begin at the time of first release or subsequent video
release in the case of a major motion picture. Sales of entertainment related
products are planned, where possible, to counterbalance the seasonality of
sports related product sales or event-driven entertainment product sales (e.g.,
a motion picture or animated series release).
Sales of the Company's sports and entertainment stickers in Europe are
generally concentrated in the first and fourth quarters, coinciding with the
related buying habits of children during the school year.
Toy Biz, like the toy industry in general, experiences a significant
seasonal pattern in sales and net income due to the heavy demand for toys
during the Christmas season. During 1994, 1995 and 1996, 70%, 69% and 64%,
respectively, of Toy Biz's domestic net sales were realized during the months
of July through December. The seasonal pattern requires significant use of
working capital, mainly to build inventory during the year, prior to the
Christmas selling season. Toy Biz expects that its business will continue to
experience a significant seasonal pattern for the foreseeable future.
The timing of events as discussed above as well as the continued
introduction of new events and related products can and will cause fluctuations
in quarterly revenues and earnings.
STRATEGIC INITIATIVES
The Company has begun several strategic initiatives intended to create
organizational synergies, coordinate creative character development and
increase mass retail penetration. The objective eventually is to integrate all
applicable products of the Company in a coordinated marketing effort. The
vision is to transform the Company into an integrated entertainment and sports
content company prominent in all forms of media, print, electronic publishing,
toys and games. The Company will concentrate on old and new character
development while targeting growth niches within each market. There can be no
assurance that the Company will have sufficient capital to fund these
initiatives (see "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources"), or that the
Company will be successful in implementing such initiatives.
The strategic initiatives are focused in four main areas: (i) the
development of Marvel Studios, (ii) the development of Marvel Interactive,
(iii) the development of Marvel Mania Restaurants and (iv) certain in-store
merchandising investments for the purpose of increasing revenues in the sports
and entertainment trading card business.
MARVEL STUDIOS
To enhance further the media exposure of the Marvel Characters, the
Company and Toy Biz intend to form Marvel Studios, although documentation
relating to such formation has not been finalized (and pending such formation,
Marvel Studios is being operated as a division of the Company). The objective
of Marvel Studios is to facilitate the release of live action and animated
feature films and television programming, and other media based on the Marvel
Characters in order to create greater consumer interest in the Marvel
Characters and related merchandise. The Company believes that any feature film
or television programming, theatrical productions or other media and any
advertising and promotion associated with such media will create consumer
interest in the Marvel Characters and revenue opportunities for the Company's
businesses, including the licensing and toy businesses. For example, the
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Company believes that the popularity of the X-MEN and SPIDER-MAN animated
television shows resulted in significant increases in net sales by Toy Biz of
X-MEN and SPIDER-MAN toys. The Company believes that Marvel Studios will
facilitate the release of feature films, television programming and other
media by giving the Company greater control over the development of such
projects compared to the present practice of only licensing the use of the
Marvel Characters in film or television projects to an unrelated third party.
The rights to produce feature films based on certain of the Marvel
Characters are currently licensed to third parties and some of those rights are
currently in dispute. There can be no assurance that the Company will be able
to reacquire or restructure these rights for development or that Marvel Studios
will enhance the likelihood that any such films or television programming will
be produced.
Currently there are three television series based on the Marvel
Characters being aired on free domestic television. Series based on the X-MEN
and SPIDER-MAN characters appear on Fox Children's Network ("FCN") and
consistently are rated among the most highly watched shows during children's
television time periods. In the Fall of 1996, The INCREDIBLE HULK began airing
on the United Paramount Network ("UPN"). In addition, from 1994 to 1996, the
Marvel Action Hour aired in syndication, which featured two half-hour segments
of THE FANTASTIC FOUR and IRON MAN. In February, 1996 a made for television
movie GENERATION X aired. The Company has also entered into an agreement with
Fox Kid's Worldwide ("FKW") for the development and broadcast of four new
animation series on FCN over a seven-year period, anticipated to begin with the
SILVER SURFER in the 1997-1998 broadcast season. The agreement with FKW
provides for the development and broadcast of at least fifty-two (52) episodes
of new series, and has a term of seven (7) years, which may be extended to ten
(10) years at the option of FKW if at least 104 episodes of eight (8) different
series are broadcast. As part of its agreement with FKW, the Company will
generally reimburse FKW for 25% of production costs, and will grant FKW a
participation in merchandise revenues derived from the Marvel Characters
featured in the television series aired by FKW. In addition commencing in the
Fall of 1997, the Company expects that its X-MEN, IRON MAN, and FANTASTIC FOUR
series will be rerun in syndication in an hour long broadcast with one half of
the hour airing an X-MEN episode and the other half of the hour airing either
an IRON MAN or FANTASTIC FOUR episode. The Company anticipates that this media
exposure will increase the popularity of the Marvel Characters on which the
series are based and thereby benefit the Company's various businesses.
MARVEL INTERACTIVE
The Company intends to further develop entertainment software and
on-line applications which leverage the popularity of Marvel Characters.
America On line ("AOL"), one of the world's largest commercial on-line
services, has entered into a joint venture with the Company to create, among
other offerings, original, exclusive on-line interactive comics or
"Cybercomics". These comics change weekly, versus the standard monthly, and
allow fans to participate in the comic by driving the story line. The Company
believes that its on-line offerings, including comics, will reach a new group
of readers beyond that of its traditional distribution. The Company's site on
AOL was launched on July 8, 1996 and recently was awarded AOL's Member's Choice
Award. Marvel Interactive has also initiated the online launch of all the
Company's brands (including Marvel Comics, Fleer/Skybox and Toy Biz) on the
internet through a series of linked websites. The internet addresses provided
by the Company are www.marvel.com and www.fleerskybox.com.
All initial software titles will be based on the Marvel Characters and
are expected to be multi-platform. Given the lead times for software
development, most of the benefits from development efforts in 1997 will not
begin to be realized until 1998. At this point, Marvel Interactive is in a
start-up mode and certain of the markets, principally on-line, are in a
developmental stage and there can be no assurance that the on-line market will
prove to be a commercial success for Marvel or that Marvel Interactive will
develop any software and, if developed, that such software will be successful.
MARVEL MANIA
Marvel Mania is projected to be a group of theme restaurants offering
an array of merchandise, in the genre of Planet Hollywood and Hard Rock Cafe,
although the theming will be based on the Marvel Characters. The Marvel Mania
units are envisioned as multimedia, interactive experiences which will give
life to the fictitious Marvel Universe of characters. Marvel Mania represents a
further strategic investment in the development of the Company's intellectual
properties. In addition to the general branding benefits Marvel desires to
obtain from Marvel Mania, the Company expects that each restaurant with its
retail merchandise area, once fully operational, will be profitable.
The restaurants are intended to be an interactive, multimedia
environment designed to entertain the customer with videos, soundtracks and
electronics. Each operation is intended to offer premium quality fashion
merchandise
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such as jackets, T-shirts, sweatshirts and hats. Other items intended for sale
will include video games, comic books, action-figure toys, collectible
figurines and animation cels.
The Marvel Mania restaurants are a joint venture between Marvel
Restaurants and PHI. Three restaurants are contemplated, with the first
restaurant expected to open in Los Angeles as a joint venture between the Joint
Venture and MCA/Universal, in which MCA/Universal has a 70% interest and the
Joint Venture has a 30% interest. The Los Angeles restaurant is under
construction and is projected to open in the second half of 1997. The Joint
Venture agreement between Marvel Restaurants and PHI provides that the Company
will lend $35 million on an interest bearing basis and make a $1 million equity
contribution to the Joint Venture for the development and construction of the
first units. If only three restaurants are developed, the Company does not
anticipate that it will be required to loan the Joint Venture the entire $35
million. After reimbursement to the Company of the loan, the Joint Venture will
pay the Company an annual license fee equal to 10% of all gross sales at Marvel
Mania units and will pay PHI, which is responsible for the daily operation of
the business, a management fee equal to 10% of gross sales. Any remaining
income will then be divided equally between the Company and PHI. As a result of
the decline in the Company's financial condition, the Company and PHI entered
into a modification of the agreement providing, among other things, that (i) if
the Company did not agree to open a third restaurant by the earlier of one year
after the opening of its Orlando restaurant or December 31, 2001, 50% of the
Joint Venture profits each year would be distributed to the Joint Venture
parties prior to full repayment of the Company's loan and (ii) Planet
Hollywood's agreement not to compete with the Joint Venture would be modified.
Through March 21, 1997, the Company has invested approximately $3.8 million and
has posted a standby letter of credit for approximately $6.1 million to fund
development costs associated with the restaurant being constructed in Los
Angeles.
TRADING AND ENTERTAINMENT CARDS
In an effort to increase revenues, Fleer/SkyBox has begun to implement
an in-store merchandising program involving the placement of fixtures which, in
an attractive and efficient manner, hold and dispense packs of trading cards.
These fixtures are being placed in retail stores with high traffic of trading
card collectors and are expected to simplify buying and make purchases more
attractive to customers by making selections easier. Fleer/SkyBox plans to
provide the fixture program to retailers who will support the category through
a dedicated in-store section. If the program is successful, Fleer/SkyBox
intends to roll out the program nationally.
INFLATION
In general, the Company's business is affected by inflation and the
effects of inflation may be experienced by the Company in future periods.
Management believes, however, that such effect has not been significant to the
Company during the past three years.
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ITEM 2. PROPERTIES
The Company has the following principal properties:
<TABLE>
<CAPTION>
Facility Location Square Feet Owned/Leased
-------- -------- ----------- -----------
<S> <C> <C> <C>
Manufacturing/Warehouse/Office Waldorf, Germany 22,825 Owned
Warehouse/Office Terrsella, Spain 20,450 Owned
Warehouse/Office SaintLaurent Du Var, France 35,327 Owned
Manufacturing/Warehouse/Office Bomporto, Italy 217,345 Owned
Office Modena, Italy 131,132 Owned
Office Modena, Italy 11,388 Owned
Manufacturing Modena, Italy 45,144 Owned
Warehouse Modena, Italy 21,953 Owned
Manufacturing/Office Modena, Italy 48,086 Owned
Warehouse Modena, Italy 14,817 Owned
Warehouse Modena, Italy 23,605 Owned
Warehouse Modena, Italy 12,411 Leased
Manufacturing/Warehouse/Office Sao Paolo, Brazil 35,801 Leased
Office New York, NY 69,000 Leased
Office* New York, NY 17,000 Leased
Office New York, NY 15,000 Leased
Office Mt. Laurel, NJ 30,836 Leased
Office London, England 8,978 Leased
Warehouse/Office Leeds, England 13,390 Leased
Warehouse/Office Wakefield, England 18,385 Leased
Warehouse/Office* Yuma, Arizona 80,000 Leased
Manufacturing/Warehouse/Office Byhalia, MS 72,300 Leased
Warehouse* Puyallup, WA 216,500 Leased
</TABLE>
In addition, the Company leases or subleases other office and
warehouse space located in several locations in the United States and in
Europe. The Company's leases expire through 2005 and provide for aggregate
monthly rentals of approximately $0.4 million, subject to escalation clauses.
*Represents facilities leased by Toy Biz. Toy Biz's New York lease
expires in April 1997. Toy Biz has entered into a sublease pursuant to which it
will occupy approximately 30,000 square feet of new office space and expects to
relocate its executive and principal offices to such premises in 1997.
ITEM 3. LEGAL PROCEEDINGS
REORGANIZATION LEGAL PROCEEDINGS
On December 27, 1996, the Debtor Companies filed petitions under
Chapter 11 of the Bankruptcy Code and in connection with such filing have been
parties to various legal proceedings. See "Business -- Reorganization."
The Holding Companies' Trustee has alleged that events of defaults
under each of the Marvel Holding Companies indentures have occurred by reason
of the commencement of the Debtor Companies' cases under the Bankruptcy Code.
The Holding Companies' Trustee has also alleged that the majority ownership and
the anti-injunction provisions of each of the indentures have been violated.
The Company is not a party to any of the indentures governing the notes issued
by the Marvel Holding Companies. In addition, the Company believes the
allegations of the Holding Companies' Trustee are either without merit or will
be resolved in connection with the prosecution of the reorganization cases of
the Marvel Holding Companies. The Holding Companies' Trustee has also alleged
that it may assert a claim based on alleged "tortious interference" occasioned
by the Company's filing of the Plan. The Company believes that any such
allegations are completely without merit.
There are twenty-seven purported class and derivative actions brought
by stockholders of the Company and holders of bonds issued by the Marvel
Holding Companies and one action brought by a purported class of Toy Biz
15
<PAGE>
shareholders presently pending in the Delaware Court of Chancery
(collectively, the "Delaware Actions") that challenge, among other things, the
Andrews Investment.
Twenty-one of the twenty-seven Delaware Actions assert either claims
on behalf of a purported class of all Marvel shareholders or shareholder
derivative claims on behalf of Marvel, or both. The complaints allege, among
other things, that the Andrews Investment represents a breach of defendants'
fiduciary duties because the proposed purchase price per share is unfair and
such purchase would dilute the minority shareholders' interest in Marvel.
Plaintiffs in these actions seek to enjoin the Andrews Investment, to rescind
the Andrews Investment if it is in fact consummated prior to the entry of the
Court's judgment, to recover damages for defendants' alleged conduct and to
recover costs and disbursements in pursuing these actions, including reasonable
attorneys' fees. These actions have been consolidated for all purposes by order
of the Delaware Court of Chancery. A consolidated complaint has not yet been
filed.
Six of the Delaware Actions assert claims on behalf of a purported
class consisting of the holders of bonds issued by the Marvel Holding
Companies. These complaints allege, among other things, that the Andrews
Investment, if consummated, would be a breach of defendants' duty of fair
dealing and good faith owed to the holders of the bonds because the Andrews
Investment would result in the substantial dilution of Marvel's outstanding
stock, which is security for the bonds, and will thus diminish the value of the
bonds. These actions have been separately consolidated by order of the Delaware
Court of Chancery. The consolidated complaint in these six actions do not name
any of the chapter 11 Debtor Companies as defendant. The parties to the
consolidated complaint have agreed to defer the filing of an answer.
All of the foregoing Delaware Actions name varying defendants
consisting in the aggregate of Marvel, Andrews Group, MacAndrews Holdings,
Parent Holdings, Marvel III, Marvel Holdings, Ronald O. Perelman, William C.
Bevins, Donald G. Drapkin, Michael Fuchs, Frank Gifford, E. Gregory
Hookstratten, Morton L. Janklow, Quincy Jones, Stan Lee, Scott C. Marden, Terry
C. Stewart and Kenneth Ziffren.
One of the pending Delaware Actions asserts claims on behalf of a
purported class of all Toy Biz shareholders. Holl v. Toy Biz, Inc., Marvel
Entertainment Group, Inc., Andrews Group, Inc., Ronald O. Perelman, Joseph M.
Ahearn, Avi Arad and Issac Perlmutter, C.A. No. 15359, was filed on November
15, 1996. The complaint alleges, among other things, that defendants Perelman,
Ahearn, Arad and Perlmutter are breaching their fiduciary duties in pursuing
the proposed offers of Marvel and Andrews Group to purchase Toy Biz stock. In
addition, the complaint alleges that defendant Marvel is aiding and abetting
the individual defendants in their unlawful conduct. Damages in an unspecified
amount are sought for the alleged breach of fiduciary duties by defendants.
Plaintiffs also seek to enjoin the consummation of the transaction, to rescind
the transaction in the event it is consummated and to recover costs and
disbursements and reasonable allowances for plaintiff's counsel. This case has
been stayed by stipulation of the parties.
No classes have been certified in any of the Delaware Actions. On
December 27, 1996, Marvel filed a petition for protection under chapter 11 of
the United States Bankruptcy Code. As a result of Marvel's filing, all of the
Delaware Actions with respect to Marvel are automatically stayed pursuant to 11
U.S.C. Section 362. On March 7, 1997, Andrews Group terminated the Stock
Purchase Agreement with Marvel and withdrew the proposal for the Andrews
Investment. On the same date, Andrews Group informed Toy Biz and the two other
principal stockholders of Toy Biz that the transactions contemplated by the
Merger Agreement and the Stock Purchase Agreements with Toy Biz and each of
such principal stockholders, respectively, would not be consummated.
Piels v. Marvel Entertainment Group, Inc., Ronald O. Perelman, Andrews
Group, Inc. and MacAndrews & Forbes Holdings Inc., Index No. 96-605702, was
commenced on November 14, 1996. This action, filed in New York Supreme Court,
County of New York, asserts claims on behalf of a purported class of all Marvel
shareholders. Named as defendants are Marvel, Ronald O. Perelman, Andrews Group
and MacAndrews Holdings. The complaint alleges, among other things, that the
defendants have breached their fiduciary duties in connection with the Andrews
Investment. Specifically, plaintiff alleges that Marvel's minority shareholders
are being directly damaged by defendants' actions with respect to the Andrews
Investment. Plaintiff seeks injunctive relief, damages in an unspecified amount
and costs and disbursements, including reasonable attorneys' fees. By orders
dated February 25, 1997, the New York Supreme Court denied plaintiff's motion
for a preliminary injunction and granted defendants' motion to dismiss the
action based on forum non conveniens.
16
<PAGE>
OTHER LEGAL PROCEEDINGS
On March 9, 1995, a complaint purporting to be a class action was
filed against SkyBox, certain of SkyBox's officers and directors and the
Company in the Delaware Court of Chancery, New Castle County, entitled Strougo
v. Lorber, et al., C.A. No. 14107 ("Strougo"). The complaint generally alleged
that SkyBox and certain of its officers and directors breached their fiduciary
duties by agreeing to be acquired by the Company at an allegedly unfair and
inadequate price, failing to consider other potential purchasers in a manner
designed to obtain the highest possible price for SkyBox's stockholders and not
acting in the best interest of stockholders. The complaint also alleged that
the Company aided and abetted the breaches of fiduciary duty committed by the
other defendants named in the complaint. The complaint sought preliminary and
permanent injunctions against consummation of the merger, damages, costs and
experts' fees and expenses. This case was dismissed without prejudice.
On March 16, 1995, a complaint purporting to be a class action was
filed against SkyBox and certain of SkyBox's officers and directors in the
Delaware Court of Chancery, New Castle County, entitled Krim and Gerber v.
SkyBox International Inc., et al., C.A. No. 14127. The complaint generally made
allegations similar to those contained in the Strougo complaint and sought
similar injunctive and other relief. This case was dismissed without prejudice.
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/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. Fleer/SkyBox's principal competitors in the trading
card industry have been separately sued for employing the same or similar
practices. On March 11, 1997, a similar action as Fishman against a competitor
of Fleer/SkyBox entitled Schwartz, et. al. v. Upper Deck, No. 96CV3408 - B
(AJB) (S.D. Cal.), was dismissed with leave to replead. The plaintiffs in that
action filed an amended complaint on March 24, 1997. On April 2, 1997, a
similar action as Fishman against another competitor of Fleer/SkyBox entitled
Price, et. al. v. Pinnacle Brands, No. 3:96-CV-2150-T (N.D. Tex.), was
dismissed with prejudice. In addition, certain of the various sports
organizations and entertainment companies that issue licenses to Fleer/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. Plaintiffs filed their opposition to the motion on or about
December 2, 1996. 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. As set forth above, on
or about December 27, 1996, the Company filed a voluntary petition in the
United States Bankruptcy Court for the District of Delaware. As a result, the
action was automatically stayed pending the outcome of the bankruptcy
proceeding. 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.
The Company and two of its officers, William C. Bevins and Terry C.
Stewart, are named as defendants in a purported class action entitled Brian
Barry SEP IRA v. Marvel Entertainment Group, Inc., pending in the United States
District Court for the Southern District of New York. The complaint seeks
unspecified damages on behalf of a proposed class of purchasers of the
Company's Common Stock from April 11, 1994 to December 31, 1994 for alleged
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, as well as Rule 10b-5 promulgated thereunder. Plaintiff alleges
that the defendants, through their own statements and those of analysts,
artificially inflated the price of Common Stock by creating earnings
expectations which the Company did not meet. Plaintiff also contends that the
defendants failed to timely disclose softness in the publishing and sports
trading card markets which led to the Company's not attaining its purported
earnings target. Plaintiff claims that the individual defendants, because of
their corporate positions, are liable under the securities laws as control
persons of the Company. The defendants moved to dismiss the complaint in its
entirety on February 23, 1996. On April 8, 1997, the District Court granted the
defendant's motion to dismiss without prejudice. As set forth above, on or
about December 27, 1996, the Company filed a voluntary petition in the United
States Bankruptcy Court for the District of Delaware. As a result, any further
action against the Company is automatically stayed pending the outcome of the
bankruptcy proceeding.
Marvel is named as a defendant in two actions which have been
consolidated for all purposes with certain related actions in proceedings now
pending in the Los Angeles County Superior Court. The consolidated cases center
17
<PAGE>
around the ownership of certain rights in the production and distribution of a
live action motion picture based on the "SPIDER-MAN" character owned by
Marvel. Once the automatic stay governing all litigation involving Marvel is
lifted by the Delaware Bankruptcy Court, Marvel intends to assert its own
claims to those rights.
In the lead case, a dispute between 21st Century Film Corporation
("21st Film"), Carolco Pictures, Inc. ("Carolco") and related entities, 21st
Film claims that it still possesses rights under an Agreement with Marvel to
produce and distribute a live action film based on the "SPIDER-MAN" character,
although it had assigned all of its rights to Carolco. Metro Goldwyn Mayer,
Inc. ("MGM") has succeeded to the litigation position of both 21st Film and
Carolco in the respective bankruptcy proceeding of those two companies. In
addition to its purchase of 21st Film and Carolco litigation positions, MGM is
a plaintiff in a separate case that has been deemed related to the lead and
consolidated cases. Marvel has answered the complaint denying MGM's
allegations.
An additional lawsuit, between Carolco and Columbia Tristar Home
Video ("Columbia"), concerns the videocassettes rights to any such film, and a
third lawsuit, between Carolco and Viacom International, Inc. ("Viacom"),
involves television rights. Both Columbia and Viacom claim that, before 21st
Film assigned its rights under its agreement with Marvel to Carolco, 21st Film
had licensed ancillary rights to each company. Each seeks to enforce its
respective rights. Viacom, however, brought a separate suit naming Marvel, and
Marvel has answered that complaint, denying Viacom's allegations.
In its answer and other pleadings, Marvel contends that it is the sole
and exclusive holder of the unencumbered right to produce and distribute a live
action based on the "SPIDER-MAN" character. Marvel contends that all rights to
produce or distribute a "SPIDER-MAN" film under its agreement with Carolco and
21st Film have reverted to Marvel.
Marvel has notified the Court in the consolidated action that Marvel
has filed for bankruptcy protection, and that the bankruptcy court filing stays
all further proceedings in the consolidated lawsuit as to Marvel. Subject to
further proceedings in the bankruptcy court, Marvel has stated that it intends
to defend vigorously the Viacom Lawsuit and the MGM Lawsuit, and to defend
vigorously and assert its exclusive rights to produce and distribute a live
action film based on the "SPIDER-MAN" character.
The Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding, the Company believes
that all of its legal proceedings and claims, individually and in the
aggregate, are not likely to have a material adverse effect on its financial
condition or results of operations. As a result of the Debtors Companies filing
of petitions pursuant to the Bankruptcy Code, the Company's legal proceedings,
other than the Debtor Companies bankruptcy proceedings, have been automatically
stayed. The Company has obtained a lifting of the automatic stay in the Fishman
case in order to allow the Company to pursue its motion to dismiss.
18
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
The Company's common stock, par value $.01 per share ("Common Stock"),
is listed and traded on the New York Stock Exchange under the symbol "MRV". The
following table sets forth the range of high and low closing sale prices for
Common Stock as reported by the New York Stock Exchange.
1996 HIGH LOW
---- ---- ---
First Quarter Ended March 31, 1996------------------ 13 1/4 10 1/4
Second Quarter Ended June 30, 1996------------------ 12 9 3/8
Third Quarter Ended September 30, 1996-------------- 9 3/4 7 3/4
Fourth Quarter Ended December 31, 1996-------------- 8 1/8 1 5/8
1995 HIGH LOW
---- ---- ---
First Quarter Ended March 31, 1995------------------ 17 3/8 13 1/2
Second Quarter Ended June 30, 1995------------------ 16 3/4 14 3/4
Third Quarter Ended September 30, 1995-------------- 16 1/4 14
Fourth Quarter Ended December 31, 1995-------------- 15 7/8 10 5/8
As of the close of business on March 28, 1997, there were 14,230
holders of record of shares of Common Stock.
The Company has not declared a cash dividend on shares of Common
Stock subsequent to the initial public offering, which was consummated on July
22, 1991.
The declaration and payment of dividends are subject to the discretion
of the Board of Directors of the Company and to certain limitations under the
General Corporation Law of the State of Delaware. The timing, amount and form
of dividends, if any, will depend on, among other things, the Company's results
of operations, financial condition, cash requirements, restrictions under the
Company's Credit Agreements an DIP Loan, restrictions on an entity operating
under chapter 11 of the Bankruptcy Code and other factors deemed relevant by
the Board of Directors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
Note 5 of "Notes to Consolidated Financial Statements".
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data have been derived from the
Consolidated Financial Statements of the Company for each of the five years
ended December 31, 1996. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
Notes thereto included elsewhere in this Annual Report.
The historical financial data for each of the periods presented are
not comparable due to several factors, including the effects of the acquisition
of Fleer on September 1, 1992, the effects of the acquisition of Panini on
September 1, 1994, the consolidation of Toy Biz since the initial public
offering by Toy Biz on March 2, 1995 (the "Toy Biz IPO"), and the effects of
the acquisition of SkyBox on April 27, 1995.
<TABLE>
<CAPTION>
For the years ended December 31,
1996 (a) 1995 (b) 1994 (d) 1993 1992 (e)
-------- -------- -------- ---- --------
STATEMENTS OF OPERATIONS DATA: (Dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenues---------------------------- $ 745.5 $ 828.9 $ 514.8 $ 415.2 $223.8
Cost of sales--------------------------- 536.4 533.3 273.4 214.2 112.3
Selling, general and administrative
expenses--------------------------- 244.5 226.7 117.6 84.2 42.5
Restructuring charges------------------- 15.8 25.0 - - -
Depreciation and amortization---------- 31.8 21.2 4.0 2.2 1.2
Amortization of goodwill, intangibles
and 303.3 17.9 10.9 10.1 4.6
deferred charges-------------------
Interest expense, net ------------------ 58.9 43.2 17.1 14.6 6.5
Foreign exchange loss/(gain), net 1.1 (0.4) (0.6) - -
Gain on sale of Toy Biz common stock---- 22.0 14.3 - - -
Equity in net income of unconsolidated
subsidiaries and other, net-------- (1.2) 1.7 11.9 4.5 -
---------- --------- ---------- --------- ---------
(Loss) income before reorganization
items, provision for income taxes,
minority interest and
extraordinary item----------------- (425.5) (22.0) 104.3 94.4 56.7
Reorganization items-------------------- 5.5 - - - -
---------- --------- ---------- --------- ---------
(Loss) income before provision for
income taxes, minority interest
and extraordinary item------------- (431.0) (22.0) 104.3 94.4 56.7
Provision for income taxes-------------- 21.7 5.7 42.5 38.4 24.1
---------- --------- ---------- --------- ---------
(Loss) income before minority interest
and extraordinary item------------- (452.7) (27.7) 61.8 56.0 32.6
Minority interest in earnings of Toy Biz 11.7 17.4 - - -
---------- --------- ---------- --------- ---------
(Loss) income before extraordinary item- (464.4) (45.1) 61.8 56.0 32.6
Extraordinary item, net of taxes-------- - (3.3)(c) - - -
---------- --------- ---------- --------- ---------
Net (loss) income----------------------- $ (464.4) $ (48.4) $ 61.8 $ 56.0 $ 32.6
========== ========= ========== ========= =========
(Loss) earnings per share: (f)
(Loss) income before extraordinary item-- $ (4.56) $ (0.45) $ 0.60 $ 0.55 $ 0.33
Extraordinary item----------------------- - (0.03)(c) - - -
---------- --------- ---------- --------- ---------
Net (loss) income------------------------ $ (4.56) $ (0.48) $ 0.60 $ 0.55 $ 0.33
========== ========= ========== ========= =========
</TABLE>
20
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONT'D)
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
(Dollars in millions)
DECEMBER 31
------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Goodwill and other intangibles, net-------------- $ 317.6 $ 604.0 $ 433.6 $ 299.0 $ 302.0
Total assets------------------------------------- $ 844.0 $ 1,226.3 $ 828.7 $ 472.0 $ 440.0
Long-term debt (including current portion)------- $ 155.6 $ 586.5 $ 384.3 $ 250.2 $ 236.3
Liabilities subject to settlement under
reorganization (g)------------------------------- $ 503.2 - - - -
Total stockholders' (deficit) equity------------- $ (256.3) $ 207.8 $ 243.0 $ 147.3 $ 84.7
</TABLE>
- -----------------------------
(a) Includes fourth quarter charges comprised of: a write-down of goodwill
and other intangibles of approximately $278.5 million and a valuation
allowance of approximately $32.2 million provided to offset deferred tax
assets of certain subsidiaries that were previously recorded. These
charges were reflected in "Amortization of goodwill, intangibles and
deferred charges", and "Provision for income taxes", respectively. These
charges were of a non-cash nature.
(b) The Company's statements of operations and financial position include
the operations and financial position of Toy Biz since the Toy Biz IPO
on March 2, 1995 and the operations and financial position of SkyBox
since its acquisition on April 27, 1995.
(c) During 1995, the Company recorded a $3.3 extraordinary loss, net of
taxes of $2.1, which represents a write-off of the related deferred
financing costs associated with the term loan portion of its Amended and
Restated Credit Agreement.
(d) The Company's statements of operations and financial position include
the operations of Panini since its acquisition on September 1, 1994.
(e) The Company's statements of operations and financial position include
the operations of Fleer since its acquisition on September 1, 1992.
(f) Earnings per share have been computed using the weighted average number
of common and common equivalent shares, except for 1995 and 1996, where
the effect of common equivalent shares is antidilutive.
(g) Certain liabilities have been classified to "Liabilities Subject to
Settlement Under Reorganization" in accordance with bankruptcy reporting
as prescribed in Statement of Position 90-7.
21
<PAGE>
ITEM 7. 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
fictional 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 the Marvel Characters and properties for consumer products, television
and film projects, on-line and interactive software, and advertising
promotions. The Company's products include comic book and other children's
publications, sports and entertainment trading cards, activity stickers, toys,
adhesives and confectionery products.
RESULTS OF OPERATIONS
In recent years there has been an overall decline in the comic book
market, and more specifically, a significant reduction in speculative purchases
of comic books and reduced readership, which has adversely affected the
Company's publishing business. In response, the Company has undertaken several
strategic actions to mitigate the effect of such contraction. However, to date
these actions have not been successful in overcoming the overall decline in the
comic book market.
Similarly, there has been a significant contraction in the sports
trading card market related in part to lower speculative purchases. In
addition, as a result of the baseball, hockey and basketball labor situations
in 1994 and 1995, fan interest declined which adversely affected sports trading
card sales and increased returns for those periods. The level of fan interest,
although showing some signs of improvement during 1996, has not returned to the
levels experienced prior to the labor situations in professional sports. The
Company believes that these factors have negatively affected the sports trading
card business, causing the Company to experience lower sales, higher returns
and higher inventory obsolescence. The level of demand for entertainment
trading cards is dependent on, among other factors, the commercial success and
media exposure of the Marvel Characters and third party licensed products, as
well as the market conditions in the comic book specialty stores. In 1994 and
1995, the sale of entertainment cards based on the Marvel Characters and third
party licensed characters substantially offset the decline in sports trading
cards. However, in 1996, the Company's sales of entertainment trading cards has
been adversely affected by lack of commercial success of properties licensed
from third parties as well as the lower demand for trading cards based on comic
book characters. The result of the minimum royalty and advertising contractual
commitments to licensors coupled with declines in the Company's trading card
net revenues have significantly and adversely affected the profit margins of
the trading card business and the Company anticipates a continued significant
adverse effect on profit margins due to the current contractual commitments. In
response, the Company has undertaken several strategic actions to increase
sales in the face of the contraction in the sports trading card and
entertainment card businesses. However, to date these actions have not been
sufficient to overcome the overall market decline in the sales of sports
trading cards and entertainment cards.
As described above, continuing operating losses in the trading card
and publishing businesses through the third quarter of 1996, as well as
significant long-term changes in industry conditions, indicated to the Company,
at that time, that there may be asset impairment. During the fourth quarter of
1996, the Company evaluated the recoverability of the carrying value of
long-lived assets, including goodwill and other intangibles, in accordance with
its previously stated accounting policies and recorded a non-cash charge of
approximately $278.5 million, substantially all related to the Company's
trading card operations. See Note 13 of "Notes to Consolidated Financial
Statements."
In the fourth quarter of 1996, the Company instituted a series of
actions to reduce its operating costs. These actions include, the termination
of certain employees and the closure of certain facilities and given the
underlying weaknesses in certain of the Company's markets and the negative
impact associated with the uncertainty surrounding its chapter 11 proceeding,
the Company made additional provisions for returns and inventory obsolescence
and provided additional reserves for other assets which may not be realized.
The aggregate amount of the foregoing charges are approximately $69.3 million,
which includes restructuring charges of $15.8 million. These charges were
reflected in various line items in the statement of operations.
During the fourth quarter of 1996, the Company recorded a charge of
approximately $32.2 million to income tax expense to reduce the carrying value
of deferred tax assets of certain subsidiaries. This adjustment is
22
<PAGE>
required given the Company's inability, based on the projected financial
results of the Company, to utilize the benefits of net operating losses
("NOLs") against future taxable income from operations.
Substantially all of the charges mentioned above were of a non-cash
nature. See Notes to Consolidated Financial Statements.
The Company experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the Credit
Agreements (as defined below, see Note 5 of "Notes to Consolidated Financial
Statements") beginning in the Fall of 1996. The Company commenced discussions
in the Fall of 1996 with Andrews Group, its indirect parent, regarding an
equity infusion in order to provide for the Company's cash requirements and
with The Chase Manhattan Bank, agent bank for the Credit Agreements, regarding
a restructuring of the Credit Agreements.
On December 27, 1996, Marvel along with certain of its operating and
inactive subsidiaries, Fleer; SkyBox; Marvel Characters, Inc.; Heroes
World Distribution, Inc.; The Asher Candy Company; Malibu; Frank H. Fleer
Corp. and Marvel Direct Marketing Inc. filed petitions for relief and a plan
of reorganization under chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware. Panini,
Marvel Restaurants (a general partner in the Joint Venture developing
the Marvel Mania restaurants, see "Business -- Strategic Initiatives -- Marvel
Mania") and Toy Biz, all of which are active, as well as certain inactive
subsidiaries did not file petitions under the Bankruptcy Code. See "Business -
Reorganization".
The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including salaries,
wages and benefits to all of its employees, trade creditors and independent
contractors and to continue funding its strategic initiatives. On January 24,
1997 the Bankruptcy Court approved a $100 million DIP Loan, which is provided
by a syndicate of lenders, including The Chase Manhattan Bank, as agent bank,
and is available to the Company until June 30, 1997. The DIP Loan is subject to
covenants and events of default including a change of control of Marvel (as
defined therein). See Note 5 of "Notes to Consolidated Financial Statements".
The Company believes that since, and in part as a result of, the
commencement of the Company's chapter 11 proceedings, the Company has
continued to experience greater than expected weakness in certain businesses,
including trading cards, due to, among other things, certain mass
merchandisers maintaining lower than expected levels of inventory of the
Company's products.
Currently there is no plan of reorganization. There can be no
assurance that any plan of reorganization under the Bankruptcy Code reflecting
the Committee Proposal or a proposal made by any other party will be proposed,
or that if a plan is proposed, such plan of reorganization will be confirmed
under the Bankruptcy Code. If the Company is unable to obtain confirmation of a
plan of reorganization, its creditors or equity security holders may seek other
alternatives for the Company, including bids for the Company or parts thereof
through an auction process. There can be no assurance that upon consummation of
a plan of reorganization that there will be improvement in any of such
businesses. The Company has, and will continue to incur professional fees and
other cash demands typically incurred in bankruptcy. From December 27, 1996
through March 28, 1997 these amounts approximated $6.3 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
The Company's net revenues were $745.5 million and $828.9 million in
1996 and 1995, respectively, a decrease of $83.4 million or 10.1%. This
reflects a decrease of $44.7 million in net publishing revenues, a decrease of
$56.7 million in net trading card and sticker revenues, and a decrease of $34.7
million in licensing revenues, partially offset by a $41.0 million increase in
toy revenues and an $11.7 million increase in other revenues. The decrease in
net publishing revenues was due to the impact on the Company of the continuing
decline in the overall comic book market, the reduction of marginally
profitable titles resulting from the implementation of the Company's business
strategy, and beginning in July 1995 the discontinuance of 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 continuing
general decline in the demand for trading cards as well as the change in the
Company's distribution of its trading cards to concentrate on trading card
specialty stores and select mass market accounts which generally resulted in
lower net revenues in 1996. In addition, entertainment card net revenues
decreased due to lower sales of cards based on Marvel's 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
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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 1995 of a significant increase in sales returns allowances and reserves.
Such lower sales return provisions, combined with the inclusion of net
revenues from SkyBox for a full year in 1996 versus only eight months in 1995
(the acquisition of SkyBox 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 decreased in 1996 as compared
to 1995 primarily as a result of an insufficient amount of new media exposure
of the Company's characters as well as an unfavorable comparison to 1995
licensing revenues which included the recording of revenues from certain large
long term licenses for certain licensing categories. Pursuant to the agreement
between FKW and the Company, the Company expects to have a new animation
series based on the SILVER SURFER on FCN in the 1997-1998 broadcast season.
Licensing revenues will vary from period to period 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 Marvel 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 a full year in 1996 as compared
to ten months in 1995, offset in part by lower revenues due to lower sales of
certain products based on the Marvel Characters. The improvement in other
revenues was due to increased sales of adhesive paper by Panini.
Gross profit was $209.1 million and $295.6 million in 1996 and 1995,
respectively, a decrease of $86.5 million. As a percentage of net revenues,
gross profit was 28.0% in 1996 as compared to 35.7% in 1995. 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 trading card net revenues without a corresponding decrease
in royalty expense given minimum payment obligations for trading cards in 1996.
Selling, General & Administrative ("SG&A") expenses were $244.5
million and $226.7 million in 1996 and 1995, respectively. The increase of
$17.8 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 a full year in 1996 as compared to ten months in 1995, the
inclusion of SkyBox for a full year in 1996 as compared to eight months in
1995, and the effect of certain charges related to the termination of employees
and other items. 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 32.8% in 1996 as compared to 27.3% in 1995.
During the fourth quarter of 1996, the Company recorded a $15.8
million restructuring charge, which primarily represents the costs related to
the closure of facilities, including severance related to terminated employees
and other costs associated with the restructuring of its comic book
distribution subsidiary and confectionery businesses. During the fourth quarter
of 1995, the Company recorded a $25.0 million restructuring charge, which
primarily represents the costs related to the consolidation and closure of
facilities, severance related to terminated employees and other costs
associated with its publishing, trading card and confectionery businesses.
Depreciation and amortization was $31.8 million and $21.2 million in
1996 and 1995, respectively. The increase of $10.6 million was primarily due to
the consolidation of Toy Biz for a full year in 1996 as compared to only ten
months in 1995, higher expense primarily resulting from an increased investment
to support Toy Biz's expanded product line and the effect of certain charges
related to the write-down of fixed assets.
Amortization of goodwill, intangibles and deferred charges was $303.3
million and $17.9 million in 1996 and 1995, respectively. The increase of
$285.4 million mainly reflects the write-down of goodwill and other intangibles
related to asset impairment which was primarily due to the significant and
long-term changes in industry conditions in trading cards and publishing. See
Note 13 of "Notes to Consolidated Financial Statements".
Interest expense, net was $58.9 million and $43.2 million in 1996 and
1995, respectively. The increase in interest expense of $15.7 million primarily
reflects the interest expense from the increased borrowings in 1995 under the
U.S. Term Loan Facility in connection with the acquisition of SkyBox for a full
year in 1996 versus only
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eight months in 1995, increased borrowings under the Credit Agreements and
Panini's short term lines of credit, 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 and
$14.3 million from the Toy Biz IPO in 1995 (see Note 4).
Provision for income taxes was $21.7 million and $5.7 million in 1996
and 1995, respectively. The net tax provision in 1996 primarily represents a
provision for income taxes related to the operations of Toy Biz and the
establishment of a valuation allowance against deferred tax assets partially
offset by a U.S. federal and foreign tax benefit relating to losses generated
from operations. In 1995, the tax provision primarily was a result of taxes on
income from foreign and Toy Biz operations offset by a U.S. federal benefit
from the balance of its other operations. As a result of the losses incurred
during 1996, the Company will be filing for an income tax refund of
approximately $10.5 million under the Company's tax sharing agreement with
certain Mafco affiliates and expects to receive this refund during 1997.
Minority interest in earnings of Toy Biz was $11.7 million and $17.4
million in 1996 and 1995, respectively. The decrease in minority interest was
primarily due to lower net income of Toy Biz partially offset by Marvel's
reduced ownership percentage.
In 1995, the Company recorded a $3.3 million extraordinary loss, net
of taxes of $2.1 million, which represented a write-off of deferred financing
costs associated with the term loan portion of the Amended and Restated Credit
Agreement.
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
The Company's net revenues were $828.9 million and $514.8 million in
1995 and 1994, respectively, an increase of $314.1 million. This increase
reflects a $75.2 million increase in trading card and sticker net revenues,
mainly attributable to the full year impact of Panini, which was acquired in
August 1994, and the acquisition of SkyBox in April 1995. This increase was
partially offset by a general decline in demand for trading cards as well as
the higher provisions for returns in 1995. In March 1995, the Company began to
consolidate Toy Biz. For 1995, the Company consolidated toy revenues of $180.2
million. Previously, the Company reported the results of Toy Biz under the
equity basis and did not include Toy Biz revenues in its consolidated net
revenues. Toy Biz revenues for the full year ended 1995 was $196.4 million as
compared to $156.5 million in 1994. The increase in net publishing revenues of
$18.3 million was due to the full year impact of Heroes World, Malibu and Welsh
Publishing Group, Inc., partially offset by a reduction in sales due to lower
speculative purchases. Primarily as a result of a full year impact of
adhesives, other product revenues increased by $37.7 million in 1995. Licensing
revenues increased by $2.7 million in 1995 as a result of, in part, licensing
revenues from certain long term licenses for certain product categories.
Licensing revenues will vary from period to period 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 Marvel Characters.
Gross margin was $295.6 million or 35.7% of sales in 1995 as compared
to $241.4 million or 46.9% in 1994. The decrease in margin percentage was
primarily attributable to the Company's increased provisions for returns and
product obsolescence for the trading card business. Excluding the results of
the trading card operation for 1995 and 1994, the operating results of the
Company's other businesses generated gross margin as a percentage of net
revenues of 42%, approximating the prior year.
SG&A were $226.7 million and $117.6 million in 1995 and 1994,
respectively. The increase of $109.1 million was attributable to the full year
impact of Panini, the acquisition of SkyBox sports and entertainment trading
cards in 1995, the consolidation of Toy Biz's results, increased corporate
overhead to support the expansion of the Company and the effects of the
strategic actions taken by the Company in its publishing business. As a
percentage of net revenues, SG&A increased to 27.3% in 1995 from 22.8% in 1994.
This percentage increase was attributable to the Company's increased return
provisions for the trading card business which decreased net revenues, higher
SG&A expense as a percentage of net revenues for the publishing operation, in
part due to the distribution of comic books through Heroes World, and other
factors.
During the fourth quarter of 1995, the Company recorded a $25.0
million restructuring charge, which primarily represents the costs related to
the consolidation and closure of facilities, severance related to terminated
employees and other costs associated with its publishing, trading card and
confectionery businesses.
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Depreciation and amortization was $21.2 million and $4.0 million in
the 1995 and 1994 periods, respectively. The increase of $17.2 million was
primarily due to the consolidation of Toy Biz for ten months in 1995 and higher
expense primarily resulting from an increased investment to support Toy Biz's
expanded product line.
Amortization of goodwill, intangibles and deferred charges was $17.9
million and $10.9 million in 1995 and 1994, respectively. The increase of $7.0
million mainly reflects the amortization related to the acquisitions of Panini
and SkyBox.
Interest expense, net was $43.2 million and $17.1 million in 1995 and
1994, respectively. The increase of $26.1 million primarily reflects the
interest on the Term Loan Facility in connection with the acquisition of Panini
in August 1994, the increased borrowings associated with the U.S. Term Loan
Agreement, a portion of which was used to finance the acquisition of SkyBox in
April 1995, and higher average borrowing rates.
The gain on sale of Toy Biz common stock in 1995 was $14.3 million
from the Toy Biz IPO (see Note 4).
Equity in net income of unconsolidated subsidiaries and other, net was
$1.7 million and $11.9 million in 1995 and 1994, respectively. This decrease
mainly represents the consolidation of Toy Biz since the Toy Biz IPO. The 1995
amount primarily represents Panini's equity interest in operations which
distribute its product internationally. During the fourth quarter of 1995,
Panini acquired the remainder of these operations and as a result, the year end
results reflect the consolidation since the acquisition.
For 1995, the provision for income taxes was $5.7 million as compared
to $42.5 million in 1994. The lower income taxes in 1995 are due primarily to
the Company's loss. In 1995, the tax provision primarily was a result of taxes
on income from foreign and Toy Biz operations offset by a U.S. federal benefit
from remaining operations. The 1994 provision for income taxes includes tax
expense related to federal, state and local and foreign income taxes.
The Company recorded a $3.3 million extraordinary loss, net of taxes
of $2.1 million, which represents a write-off of the deferred financing costs
associated with the term loan portion of its Amended and Restated Credit
Agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the Credit
Agreements (as defined below, see Note 5 of "Notes to Consolidated Financial
Statements") beginning in the Fall of 1996. The Company commenced discussions
in the Fall of 1996 with Andrews Group, its indirect parent, regarding an
equity infusion in order to provide for the Company's cash requirements and
with The Chase Manhattan Bank, agent bank for the Credit Agreements, regarding
a restructuring of the Credit Agreements.
On December 27, 1996, Marvel along with certain of its operating and
inactive subsidiaries, Fleer Corp.; SkyBox International, Inc.; Marvel
Characters, Inc.; Heroes World Distribution, Inc.; The Asher Candy Company;
Malibu Comics Entertainment, Inc.; Frank H. Fleer Corp. and Marvel Direct
Marketing Inc. filed petitions for relief and a plan of reorganization under
chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. Panini S.p.A., Marvel
Restaurant Venture Corp. (a general partner in the Joint Venture developing
the Marvel Mania restaurants, see "Business -- Strategic Initiatives -- Marvel
Mania") and Toy Biz, Inc., all of which are active, as well as certain
inactive subsidiaries did not file petitions under the Bankruptcy Code. See
"Business - Reorganization".
The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including salaries,
wages and benefits to all of its employees, trade creditors and independent
contractors and to continue funding its strategic initiatives. On January 24,
1997 the Bankruptcy Court approved $100 million DIP Loan, which is provided by
a syndicate of lenders, including The Chase Manhattan Bank, as agent bank, and
is available to the Company until June 30, 1997. The DIP Loan is subject to
covenants and events of default including a change of control of Marvel (as
defined therein). See Note 5 of "Notes to Consolidated Financial Statements".
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At March 28, 1997, the Company's outstanding bank indebtedness was
approximately $711.3 million, of which $56.9 million relates to borrowings
under the DIP Loan (including approximately $6.9 million drawn under letters of
credit), $607.6 million relates to borrowings under the Credit Agreements,
approximately Italian Lire 25 billion (approximately $14.9 million based on
exchange rates at March 28, 1997) relates to borrowings for Panini's Adespan
adhesives facility and approximately Italian Lire 53.4 billion (approximately
$31.9 million based on exchange rates at March 28, 1997) relates to borrowings
under Panini's short term lines of credit. Panini had approximately Italian
Lire 4.9 billion (approximately $3.2 million based on exchange rates at March
28, 1997) available under its foreign credit facilities at March 28, 1997. In
addition, there was approximately $24.5 million (net of letters of credit
outstanding) available under the Toy Biz credit agreement at March 28, 1997.
The Credit Agreements and DIP Loan provide that it is an event of
default if there is a change of control of Marvel. Toy Biz's credit agreement
provides it is an event of default if Marvel does not control Toy Biz, although
Toy Biz believes that upon any such default it will be able to obtain an
amendment or waiver of such event of default or refinance such indebtedness.
There can be no assurance as to the terms and conditions of such amendment or
refinancing.
On February 26, 1997, the Bankruptcy Court entered an order granting
relief from the automatic stay to allow the Holding Companies' Trustee to vote
and to foreclose upon the Pledged Stock. On February 27, 1997, the Company and
the Marvel Holding Companies filed a notice of appeal with respect to such
order. On March 19, 1997, the Creditors Committee notified the Company that on
March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of the Company and the Holding
Companies. On March 24, 1997, the Court in the Debtor Companies' bankruptcy
cases issued a restraining order preventing the Creditors Committee and the
Holding Companies' Trustee from voting the Pledged Stock or otherwise replacing
the Board of Directors of the Company and determined that the Creditors
Committee and the Holding Companies' Trustee must comply with the procedural
requirements of section 362 of the Bankruptcy Code to seek relief from the
automatic stay to take such action. The Court, however, also ruled that the
Creditors Committee and Holding Companies' Trustee could replace the Board of
Directors of Marvel Holdings and Parent Holdings. On March 28, 1997, the
Creditors Committee and the Holding Companies' Trustee filed a motion to lift
the automatic stay in the Debtor Companies' cases in order to permit the
Creditors Committee and the Holding Companies' Trustee to replace the Board of
Directors of Marvel. A hearing date on such motion has been set for
May 14, 1997. On the same date, the Creditors Committee filed an emergency
appeal of the restraining order of the Bankruptcy Court issued on
March 24, 1997 preventing the replacement of the Board of Directors of Marvel.
A briefing schedule has been set for the emergency appeal and a hearing date
for such appeal has been set for May 1, 1997.
Although there can be no assurance, the Company believes that
borrowings under the DIP Loan and internally generated funds will be sufficient
through the date of maturity of the DIP Loan to enable the Debtor Companies to
meet their consolidated cash requirements, including debt service. The DIP Loan
expires April 30, 1997 and the maturity of the DIP Loan may be extended at the
option of Marvel to June 30, 1997. As part of the Plan, a group of lenders had
committed to lend $160 million to Toy Biz which could be used by the Company
and its subsidiaries, including Toy Biz, to fund working capital and strategic
investments and repay borrowings outstanding under the DIP Loan. Such
commitments have been terminated as a result of the withdrawal of the Andrews
Investment and the Plan. In addition the DIP Loan is subject to a number of
events of default and conditions of borrowing. In the event borrowings under
the DIP Loan become due either upon maturity or an event of default, prior to a
plan of reorganization being confirmed under the Bankruptcy Code and
consummated, then the Debtor Companies will have to seek one or more
alternatives to provide for its cash requirements (including the repayment of
borrowings under the DIP Loan), including seeking alternative
debtor-in-possession financing and/or sales of assets and/or sales of one or
more of the Company's businesses. Although there can be no assurance, the
Company believes that its Panini subsidiary should be able to meet its cash
requirements, including for debt service and repayment, from permissible
advances by Marvel of borrowings under the DIP Loan, local borrowings and
internally generated funds. The Company anticipates that internally generated
funds of Toy Biz and borrowings under Toy Biz's credit agreement will be
sufficient to enable Toy Biz to meet its cash requirements, including debt
service, for the foreseeable future. See Note 5 of "Notes to Consolidated
Financial Statements".
As chapter 11 debtors, the Debtor Companies may sell (subject, in
certain circumstances, to Bankruptcy Court approval), or otherwise dispose of
assets, and liquidate or settle liabilities for amounts other than those
reflected in the consolidated financial statements. The amounts reported in the
consolidated financial statements do not give effect to any adjustments to the
carrying value of assets or amount of liabilities that might result as a
consequence of actions taken pursuant to the bankruptcy or a plan of
reorganization. If the Company is unable to obtain confirmation of a plan
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of reorganization, its creditors or equity security holders may seek other
alternatives for the Company, including bids for the Company or parts thereof
through an auction process. In that event it is possible that certain assets
would not be realized and additional liabilities and claims would be asserted
which are not presently reflected in the consolidated financial statements and
which are not presently determinable. The effect of any such assertion or
non-realization could be material. Currently, there is no plan of
reorganization that is pending with the Bankruptcy Court. These conditions
raise substantial doubt as to the Company's ability to continue as a going
concern.
Net cash (used in) provided by operating activities was ($102.9)
million, $3.5 million and $12.7 million for the years ended December 31, 1996,
1995 and 1994, respectively. The use of funds in 1996 was principally due to
the loss from operations and partially offset by a decrease in working capital.
Cash shown on the Consolidated Balance Sheets at December 31, 1996 of $25.1
million, includes $6.0 million of Toy Biz cash.
Cash used in investing activities was $10.8 million, $230.5 million
and $158.1 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The primary use of these funds in 1996 was for capital
expenditures for Panini's Adespan adhesives facility and tooling and molds and
capitalized product development costs related to Toy Biz partially offset by
net proceeds from the Company's sale of a portion of its investment in Toy Biz.
Capital expenditures for the Company (excluding Toy Biz), including software
development costs, are expected to be approximately $25.0 million for the year
ending December 31, 1997. Capital expenditures for Toy Biz, including product
development and package design costs and software development costs, are
projected to approximate $25.0 million for the year ending December 31, 1997.
In August 1996, Toy Biz sold in a public offering 700,000 shares of
its Class A common stock at a price 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 $9.3 million and
$35.7 million, respectively, after deducting amounts accrued for 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 26.6% and its voting control decreased to 78.4%.
In addition to the Pledged Stock, approximately 2.9 million shares of
the Company's common stock are subject to a negative pledge under the indenture
to the notes issued by Marvel Holdings and approximately 0.3 million shares of
the Company's common stock were pledged to secure letters of credit of
subsidiaries of Mafco. The indentures governing the indebtedness of the Marvel
Holding Companies contain various covenants relating to the Company, including
certain limitations on the Company's indebtedness.
The Company expects to incur approximately $1 million in net
production costs for the INCREDIBLE HULK animated series being produced for the
1997-1998 broadcast year. 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. One-half of such amounts are expected to be reimbursed to the
Company by Toy Biz pursuant to the understanding with respect to Marvel
Studios.
The Company, along with its joint venture partner, is continuing
development of Marvel theme restaurants. Three restaurants are contemplated,
with the first restaurant expected to open in Los Angeles as a joint venture
between the Joint Venture and MCA/Universal, in which MCA/Universal has a 70%
interest and the Joint Venture has a 30% interest. The Los Angeles restaurant
is under construction and is projected to open in the second half of 1997. The
Company has posted a standby letter of credit for approximately $6.1 million to
fund development costs associated with the restaurant being constructed in Los
Angeles. See "Business --Strategic Initiatives -- Marvel Mania."
Toy Biz has authorized the repurchase of up to three million shares of
Class A Common Stock. The repurchase program requires the consent of Marvel
Characters, Inc., a wholly owned subsidiary of Marvel, which has announced that
it will seek approval of the bankruptcy court for such consent. Such stock
repurchase also requires approval under Toy Biz's credit agreement.
FORWARD-LOOKING STATEMENTS
Statements in this annual report on Form 10-K for the year ended
December 31, 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 future
financial performance. In addition to factors that may be described in the
Company's
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Securities and Exchange Commission filings, including this filing, the
following factors, among others, could cause the Company's financial
performance to differ materially from that expressed in any forward-looking
statements made by, or on behalf of, the Company: (i) the ability of the
Debtor Companies to successfully reorganize in bankruptcy and the outcome of
such bankruptcy proceedings, (ii) the ability of the Debtor Companies to
continue to draw on the DIP Loan and to obtain additional DIP Loan financing
subsequent to the maturity of the DIP Loan on June 30, 1997 or in the event of
an earlier termination of the DIP Loan, (iii) continued weakness in the comic
book market which cannot be overcome by the Company's new editorial,
production and distribution initiatives in comic publishing; (iv) continued
general weakness in the trading card market; (v) the failure of fan interest
in baseball to return to traditional levels that existed prior to the 1994
baseball strike thereby negatively affecting the Company's baseball card
business; (vi) the effectiveness of the Company's changes to its trading card
and publishing distribution; (vii) a decrease in the level of media exposure
or popularity of the Company's characters resulting in declining revenues
based on such characters; (viii) 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; (ix)
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; (x) consumer acceptance of new product
introductions, including those for toys; and (xi) 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements and supplementary data
listed in the accompanying Index to Consolidated Financial Statements and
Schedule on page F-1 herein. Information required by other schedules called for
under Regulation S-X is either not applicable or is included in the financial
statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the Registrant's definitive proxy
statement for its 1997 annual meeting of stockholders, and if such proxy is not
so filed, it will be filed as an amendment to the Form 10-K.
29
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1 and 2) Financial Statements. See Index to Consolidated
Financial Statements and Schedule which appears on page F-1 herein.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Restated Certificate of Incorporation of the Registrant.
Incorporated by reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 (the "1991 10-K").
3.2 Amendment to Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 (the "1993 10-K").
3.3 Amended and Restated By-laws of the Registrant. Incorporated
by reference to Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 1996
(the "1996 Third Quarter 10-Q").
9.1 Voting Trust Agreement dated as of March 2, 1995, by and
among the Registrant, Avi Arad and Toy Biz, Inc.
Incorporated by reference to Exhibit No. 9.1 to the Toy
Biz, Inc. Registration Statement on Form S-1 (No. 33-87268)
filed February 21, 1995 (the "Toy Biz 1995 Registration
Statement").
9.2 Voting Trust Agreement dated as of March 2, 1995, by and
among the Registrant, Isaac Perlmutter, Isaac Perlmutter
T.A. and Toy Biz, Inc. Incorporated by reference to Exhibit
9.2 to the Toy Biz 1995 Registration Statement.
10.1 Formation and Contribution Agreement dated as of March 19,
1993, among Toy Biz, Inc., Isaac Perlmutter, Isaac
Perlmutter T.A., the Registrant, Avi Arad and Toy Biz
Acquisition, Inc., as amended as of March 31, 1993, and
April 30, 1993. Incorporated by reference to Exhibit 10.29
to the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1993.
10.2 Distribution Agreement dated as of September 1, 1993,
between Curtis Circulation Company and the Registrant.
Incorporated by reference to Exhibit 10.3 to the 1993 10-K.
Confidential treatment has been granted for portions of this
document.
10.3 Marketing and Distribution Agreement dated November 1, 1989,
between Publishers Group West Incorporated and the
Registrant. Incorporated by reference to Exhibit 10.5 to the
1991 Registrant's Statement on Form S-1 (File No. 33-40574)
(the "1991 Registration Statement").
10.4 Agreement dated November 9, 1994, between Time Distribution
Services and Fleer Corp. Incorporated by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 (the "1994
10-K"). Confidential treatment has been granted for portions
of this document.
10.5 Lease dated as of July 1, 1986, between 387 P.A.S.
Enterprises and Cadence Industries Corporation (9th Floor).
Incorporated by reference to Exhibit 10.7 to the 1991
Registration Statement.
10.6 Lease Modification and Extension Agreement dated as of July
1, 1991, between 387 P.A.S. Enterprises and the Registrant
(9th, 10th, 11th and 12th Floors). Incorporated by reference
to Exhibit 10.9 to the 1991 10-K.
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EXHIBIT NO. DESCRIPTION
----------- -----------
10.7 Sublease dated September 13, 1991, between American Banker
Bond Buyer and the Registrant (12th Floor). Incorporated by
reference to Exhibit 10.10 to the 1991 10-K.
*10.8 Marvel Entertainment Group, Inc. Amended and Restated Stock
Option Plan.
10.9 Services Agreement dated as of July 22, 1991, among the
Registrant, MacAndrews & Forbes Holdings Inc. and Andrews
Group Incorporated. Incorporated by reference to Exhibit
10.13 to the 1991 10-K.
10.10 Tax Indemnification Agreement dated as of July 22, 1991,
between the Registrant and Mafco Holdings Inc. Incorporated
by reference to Exhibit 10.14 to the 1991 10-K.
10.11 Tax Sharing Agreement dated as of May 18, 1993, among the
Registrant, certain of its subsidiaries and Mafco Holdings
Inc. Incorporated by reference to Exhibit 10.32 to the
Marvel (Parent) Holdings Inc. Registration Statement on Form
S-1 (File No. 33-65496).
10.12 Amended and Restated Tax Sharing Agreement dated as of
January 1, 1994, between Mafco Holdings Inc., Marvel III
Holdings Inc., the Registrant and certain subsidiaries of
the Registrant.
Incorporated by reference to Exhibit 10.15 to the 1993 10-K.
10.13 Stock Purchase Agreement dated as of July 1, 1993, between
Marvel Holdings Inc. and the Registrant. Incorporated by
reference to Exhibit 10.16 to the 1993 10-K.
10.14 Term Sheet for License Agreement dated January 25, 1995,
between Major League Baseball Properties, Inc. and Fleer
Corp. Incorporated by reference to Exhibit 10.20 to the
Registrant's 1994 10-K. Confidential treatment has been
granted for portions of this document.
10.15 License Agreement dated December 22, 1994, between Major
League Baseball Players Association and Fleer Corp.
Incorporated by reference to Exhibit 10.21 to the 1994 10-K.
Confidential treatment has been granted for portions of this
document.
10.16 Amendment dated February 7, 1996, to License Agreement dated
December 22, 1994, between Major League Baseball Players
Association and Fleer Corp. Incorporated by reference to
Exhibit 10.22 to the 1995 10-K. Confidential treatment has
been granted for portions of this document.
10.17 Retail Product License Agreement dated July 21, 1995,
between NBA Properties, Inc. and the Registrant.
Incorporated by reference to Exhibit 10.27 to the 1995 10-K.
Confidential treatment has been granted for portions of this
document.
10.18 Employment Agreement dated as of August 1, 1995, between the
Registrant and Jeffrey L. Kaplan. Incorporated by reference
to Exhibit 10.44 to the 1995 10-K.
*10.19 Employment Agreement dated as of January 26, 1996, between
the Registrant and Scott C. Marden.
10.20 Employment Agreement dated as of August 13, 1996, between
the Registrant and David J. Schreff. Incorporated by
reference to Exhibit 10.2 to the 1996 Third Quarter 10-Q.
10.21 Joint Venture Agreement dated December 9,1994, between
Marvel Restaurant Venture Corp. and EBCO Management, Inc.
Incorporated by reference to Exhibit 10.45 to the 1994 10-K.
Confidential treatment has been granted for portions of this
document.
10.22 Amended and Restated Credit and Guarantee Agreement dated as
of August 30, 1994, among the Registrant, Fleer Corp., the
banks from time-to-time parties thereto, the Co-Agents and
Chemical Bank, as Administrative Agent. Incorporated by
reference to Exhibit 10.49 to the Form 8-K filed September
15, 1994 (the "1994 August 8-K").
31
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
10.23 Term Loan and Guarantee Agreement dated as of August 30,
1994, among Marvel Comics Italia S.r.l., the Registrant and
Instituto Bancario San Paolo Di Torino, S.p.A. Incorporated
by reference to Exhibit 10.50 to the 1994 August 8-K.
10.24 Participation Agreement dated as of August 30, 1994, among
Instituto Bancario San Paolo Di Torino, S.p.A., New York
Limited Branch, as Italian Lender, Chemical Bank, as
Administrative Agent, and the financial institutions
signatory thereto, as Participants. Incorporated by
reference to Exhibit 10.51 to the 1994 August 8-K.
10.25 Credit and Guarantee Agreement dated as of April 24, 1995,
by and among the Registrant, Fleer Corp., Chemical Bank, as
Administrative Agent, and the financial institutions parties
thereto. Incorporated by reference to Exhibit (b)(3) to the
Registrant's Schedule 14D-1 dated March 15, 1995.
10.26 First Amendment dated as of November 22, 1994, to the
Amended and Restated Credit and Guarantee Agreement by and
among the Registrant, Fleer Corp., Chemical Bank, as
Administrative Agent, and the financial institutions parties
thereto. Incorporated by reference to Exhibit 10.4 to the
Form 8-K of the Registrant filed May 11, 1995.
10.27 Second Amendment dated as of April 24, 1995, to the Amended
and Restated Credit and Guarantee Agreement by and among the
Registrant, Fleer Corp., Chemical Bank, as Administrative
Agent, and the financial institutions parties thereto.
Incorporated by reference to Exhibit 10.5 to the Form 8-K of
the Registrant filed May 11, 1995.
10.28 Consent Number 1 dated as of February 9, 1996, to the
Registrant's Credit Agreements with Chemical Bank, as
Administrative Agent, and the financial institutions from
time to time parties thereto. Incorporated by reference to
Exhibit 10.55 to the 1995 10-K.
10.29 Third Amendment dated as of March 1, 1996, to the Amended
and Restated Credit and Guarantee Agreement by and among the
Registrant, Fleer Corp., Chemical Bank, as Administrative
Agent, and the financial institutions from time to time
parties thereto. Incorporated by reference to Exhibit 10.56
to the 1995 10-K.
10.30 Consent Number Two and First Amendment dated as of March 1,
1996, to the Credit and Guarantee Agreement among the
Registrant, Fleer Corp., the financial institutions from
time to time parties thereto, the Co-Agents and Chemical
Bank, as Administrative Agent. Incorporated by reference to
Exhibit 10.56 to the 1995 10-K.
10.31 Consent Number Three dated as of June 30, 1996 to the Credit
and Guarantee Agreement among the Registrant, Fleer Corp.,
the financial institutions from time to time parties
thereto, and The Chase Manhattan Bank (formerly Chemical
Bank) as administrative agent. Incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996 (the "1996 Second
Quarter 10-Q").
10.32 Consent Number Two and Fourth Amendment, dated as of June
30, 1996, to the Amended and Restated Credit and Guarantee
Agreement, by and among the Registrant, Fleer Corp., the
financial institutions from time to time parties thereto,
and The Chase Manhattan Bank (formerly named Chemical Bank).
Incorporated by reference to Exhibit 10.2 to the 1996 Second
Quarter 10-Q.
10.33 Line of Credit, dated as of March 27, 1996 between Fleer
Corp. and The Chase Manhattan Bank (formerly named Chemical
Bank). Incorporated by reference to Exhibit 10.3 to the 1996
Second Quarter 10-Q.
32
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
10.34 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. Incorporated by reference to Exhibit 10.1 to the 1996
Third Quarter 10-Q.
*10.35 Standstill Agreement and Amendment dated as of December 20,
1996 among the signatories thereto.
*10.36 Consent Number Four and Second Amendment dated as of
November 25, 1996, to the Credit and Guarantee Agreement
among the Registrant, Fleer Corp., the banks and other
financial institutions, from time to time as parties thereto
and The Chase Manhattan Bank (formerly Chemical Bank) as
administrative agent.
*10.37 Waiver Number One or Fifth Amendment, dated as of November
25, 1996, to the Amended and Restated Credit and Guarantee
Agreement among the Registrant, Fleer Corp., the banks and
other financial institutions from time to time as parties
thereto and The Chase Manhattan Bank (formerly Chemical
Bank) as administrative agent.
*10.38 Revolving Credit and Guaranty Agreement, dated as of
December 27, 1996, among the Registrant, certain
subsidiaries of the Registrant, the banks party thereto and
The Chase Manhattan Bank, as agent.
*10.39 First Amendment to Revolving Credit and Guaranty Agreement,
dated as of January 24, 1997 among the Registrant, certain
subsidiaries of the Registrant, the banks party thereto and
The Chase Manhattan Bank, as agent.
*10.40 Second Amendment to Revolving Credit and Guaranty Agreement,
dated as of February 11, 1997, among the Registrant, certain
subsidiaries of the Registrant, the banks party thereto and
The Chase Manhattan Bank, as agent.
10.41 Stockholders Agreement dated as of March 2, 1995, by and
among the Registrant, Isaac Perlmutter, Isaac Perlmutter
T.A., Toy Biz, Inc., Avi Arad and Zib, Inc. Incorporated by
reference to Exhibit 10.1 to the Toy Biz 1995 Registration
Statement.
10.42 Registration Rights Agreement dated as of March 2, 1995, by
and among Toy Biz, Inc., the Registrant, Isaac Perlmutter
and Avi Arad. Incorporated by reference to Exhibit 10.2 to
the Toy Biz 1995 Registration Statement.
10.43 Services Agreement dated as of January 1, 1995, between Toy
Biz, Inc. and the Registrant. Incorporated by reference to
Exhibit 10.18 to the Toy Biz 1995 Registration Statement.
10.44 License Agreement dated April 30, 1993, by and between Toy
Biz, Inc. and the Registrant, as amended December 1, 1994.
Incorporated by reference to Exhibit 10.9 to the Toy Biz
1995 Registration Statement.
*10.45 Amendment dated November 22, 1995, to the License Agreement
dated April 30, 1993, as amended, between Toy Biz, Inc. and
the Registrant.
10.46 Amendment dated February, 1995, to the License Agreement
dated April 30, 1993, as amended, between Toy Biz, Inc. and
the Registrant. Incorporated by reference to Exhibit 10.9(b)
to the Toy Biz 1995 Registration Statement.
10.47 License Agreement dated July 1, 1994, between Toy Biz, Inc.
and the Registrant. Incorporated by reference to Exhibit
10.12 to the Toy Biz 1995 Registration Statement.
* 21 Subsidiaries of the Registrant
33
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
* 23.1 Consent of Ernst & Young LLP
* 24.1 Power of Attorney executed by Ronald O. Perelman
* 24.2 Power of Attorney executed by William C. Bevins
* 24.3 Power of Attorney executed by Donald G. Drapkin
* 24.4 Power of Attorney executed by Michael J. Fuchs
* 24.5 Power of Attorney executed by Frank Gifford
* 24.6 Power of Attorney executed by E. Gregory Hookstratten
* 24.7 Power of Attorney executed by Morton L. Janklow
* 24.8 Power of Attorney executed by Quincy Jones
* 24.9 Power of Attorney executed by Stan Lee
* 24.10 Power of Attorney executed by Scott C. Marden
* 24.11 Power of Attorney executed by Scott M. Sassa
* 24.12 Power of Attorney executed by David J. Schreff
* 24.13 Power of Attorney executed by Terry C. Stewart
* 24.14 Power of Attorney executed by Kenneth Ziffren
* 27 Financial Data Schedule
------------------------------------------
*Filed herewith.
(b) Reports on Form 8-K filed during the last quarter of the year
ended December 31, 1996.
Form 8-K dated November 20, 1996.
Form 8-K dated December 27, 1996.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
April 15, 1997 By: /s/ Scott M. Sassa
--------------------------------------
Scott M. Sassa
Chairman and Chief Executive
Officer
(Principal Executive Officer)
Dated: April 15, 1997 By: /s/ Bobby G. Jenkins
--------------------------------------
Bobby G. Jenkins
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Ronald O. Perelman * Director April 15, 1997
- ------------------------------------
Ronald O. Perelman
William C. Bevins* Director April 15, 1997
- ------------------------------------
William C. Bevins
Donald G. Drapkin * Director April 15, 1997
- ------------------------------------
Donald G. Drapkin
Michael J. Fuchs * Director April 15, 1997
- ------------------------------------
Michael J. Fuchs
Frank Gifford * Director April 15, 1997
- ------------------------------------
Frank Gifford
E. Gregory Hookstratten * Director April 15, 1997
- ------------------------------------
E. Gregory Hookstratten
Morton L. Janklow * Director April 15, 1997
- ------------------------------------
Morton L. Janklow
35
<PAGE>
SIGNATURES (continued)
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Quincy Jones*
- ------------------------------------ Director April 15, 1997
Quincy Jones
Stan Lee * Director April 15, 1997
- ------------------------------------
Stan Lee
Scott C. Marden* Director April 15, 1997
- ------------------------------------
Scott C. Marden
/s/ Scott M. Sassa Director April 15, 1997
- ------------------------------------
Scott M. Sassa
David J. Schreff* Director April 15, 1997
- ------------------------------------
David J. Schreff
Terry C. Stewart* Director April 15, 1997
- ------------------------------------
Terry C. Stewart
Kenneth Ziffren * Director April 15, 1997
- ------------------------------------
Kenneth Ziffren
</TABLE>
* The undersigned by signing his name hereto does hereby execute this Annual
Report pursuant to powers of attorney filed as exhibits to this Annual
Report.
By: /s/ Steven R. Isko
-------------------------------
Steven R. Isko
Attorney-in-fact
36
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors-------------------------------------------------------------------------------- F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995-------------------------------------------------- F-3
Consolidated Statements of Operations for the years ended December 31, 1996, 1995, and 1994------------------- F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994-------------------------------------------------------------------- F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994-------------------- F-6
Notes to Consolidated Financial Statements-------------------------------------------------------------------- F-7
Schedule II - Valuation and Qualifying Accounts *------------------------------------------------------------- F-33
</TABLE>
* - All other schedules prescribed by the accounting regulations of the
Commission are not required or are inapplicable and therefore have been
omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Marvel Entertainment Group, Inc.
We have audited the accompanying consolidated balance sheets of Marvel
Entertainment Group, Inc. (Debtor-in-Possession) ("Company") as of December 31,
1996 and 1995, and the related consolidated statements of operations, changes
in stockholders' (deficit) equity, and cash flows for each of the three years
in the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Marvel Entertainment Group, Inc. at December 31, 1996 and 1995, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, on December 27, 1996, the Company, together
with eight of its subsidiaries, filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. The Company is currently
operating its business as a Debtor-in-Possession under the jurisdiction of the
Bankruptcy Court, and continuation of the Company as a going concern is
contingent upon, among other things, the ability to formulate a plan of
reorganization which will gain approval of requisite parties under the United
States Bankruptcy Code and confirmation of the Bankruptcy Court, the ability
to comply with its debtor-in-possession financing agreement, and the Company's
ability to generate sufficient cash from operations and obtain financing
sources to meet its future obligations. In addition, the Company has
experienced recurring operating losses, working capital deficiencies, negative
operating cash flows and is currently in default under substantially all of
its debt agreements (other than the Toy Biz, Inc. debt agreement). These
matters raise substantial doubt about the Company's ability to continue as a
going concern. In the event a plan of reorganization is accepted, continuation
of the business thereafter is dependent on the Company's ability to achieve
sufficient cash flow to meet its restructured debt obligations. The
accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classification of liabilities that might result from the outcome of these
uncertainties.
Ernst & Young LLP
New York, New York
March 28, 1997
F-2
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash ......................................................... $ 25.1 $ 53.6
Accounts receivable, net ..................................... 229.1 236.7
Inventories, net ............................................. 78.1 82.4
Deferred income taxes ........................................ 6.2 50.4
Income tax receivable ........................................ 11.8 24.6
Prepaid expenses and other ................................... 49.2 42.9
-------- --------
Total current assets ....................................... 399.5 490.6
Property, plant and equipment, net ............................. 79.5 71.3
Goodwill and other intangibles, net ............................ 317.6 604.0
Deferred charges and other ..................................... 47.4 60.4
-------- --------
Total Assets ............................................... $ 844.0 $1,226.3
======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable ............................................. $ 98.5 $ 104.8
Accrued expenses and other ................................... 174.7 194.8
Short term borrowings ........................................ 47.3 13.3
Current portion of long-term debt ............................ 10.6 5.2
Liabilities subject to settlement under reorganization ....... 14.7 -
-------- --------
Total current liabilities .................................. 345.8 318.1
Long-term debt ................................................. 145.0 581.3
Other long-term liabilities .................................... 20.4 48.7
Liabilities subject to settlement under reorganization ......... 488.5 -
-------- --------
Total liabilities .......................................... 999.7 948.1
Minority interest in Toy Biz ................................... 100.6 70.4
-------- --------
Stockholders' (deficit) equity:
Preferred stock, $.01 par value; 50,000,000 shares
authorized, none issued .................................... - -
Common Stock, $.01 par value; 250,000,000 shares authorized,
101,809,657 and 101,702,664 shares issued and outstanding
at December 31, 1996 and 1995, respectively ................ 1.0 1.0
Additional paid-in capital ................................... 93.1 92.4
(Accumulated deficit) retained earnings ...................... (350.3) 114.1
Cumulative translation adjustment ........................... (0.1) 0.3
-------- --------
Total Stockholders' (Deficit) Equity ....................... (256.3) 207.8
-------- --------
Total Liabilities and Stockholders' (Deficit) Equity ....... $ 844.0 $1,226.3
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-3
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net revenues ................................................................... $ 745.5 $ 828.9 $ 514.8
Cost of sales .................................................................. 536.4 533.3 273.4
Selling, general & administrative expenses ..................................... 244.5 226.7 117.6
Restructuring charges .......................................................... 15.8 25.0 -
Depreciation and amortization .................................................. 31.8 21.2 4.0
Amortization of goodwill, intangibles and deferred charges ..................... 303.3 17.9 10.9
Interest expense, net .......................................................... 58.9 43.2 17.1
Foreign exchange loss/(gain), net .............................................. 1.1 (0.4) (0.6)
Gain on sale of Toy Biz common stock ........................................... 22.0 14.3 -
Equity in net (loss) income of unconsolidated subsidiaries and other, net ...... (1.2) 1.7 11.9
-------- -------- --------
(Loss) income before reorganization items, provision for income taxes,
minority interest and extraordinary item ..................................... (425.5) (22.0) 104.3
Reorganization items ........................................................... 5.5 - -
-------- -------- --------
(Loss) income before provision for income taxes,
minority interest and extraordinary item ..................................... (431.0) (22.0) 104.3
Provision for income taxes ..................................................... 21.7 5.7 42.5
-------- -------- --------
(Loss) income before minority interest and extraordinary item .................. (452.7) (27.7) 61.8
Minority interest in earnings of Toy Biz ....................................... 11.7 17.4 -
-------- -------- --------
(Loss) income before extraordinary item ........................................ (464.4) (45.1) 61.8
Extraordinary item, net of taxes ............................................... - (3.3) -
-------- -------- --------
Net (loss) income .............................................................. ($464.4) ($48.4) $61.8
======== ======== ========
(Loss) earnings per share:
(Loss) income before extraordinary item ........................................ ($4.56) ($0.45) $ .60
Extraordinary item ............................................................. - (0.03) -
-------- -------- --------
Net (loss) income .............................................................. ($4.56) ($0.48) $ .60
======== ======== ========
Weighted average number of common and common equivalent shares
outstanding (in millions) .................................................... 101.8 101.7 103.7
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-4
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
(Accumulated
Additional Deficit)/ Cumulative
Common Paid-in Retained Translation
Stock Capital Earnings Adjustment Total
-------- ------------ -------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ....................... $1.0 $47.0 $100.7 ($1.4) $147.3
Exercise of stock options ........................ - 22.0 - - 22.0
Tax benefit from exercise of stock options ....... - 12.2 - - 12.2
Currency translation adjustment .................. - - - (0.3) (0.3)
Net income ....................................... - - 61.8 - 61.8
-------- ------------ -------------- ------------- -------
Balance at December 31, 1994 ..................... 1.0 81.2 162.5 (1.7) 243.0
Exercise of stock options ........................ - 8.1 - - 8.1
Tax benefit from exercise of stock options ....... - 3.1 - - 3.1
Currency translation adjustment .................. - - - 2.0 2.0
Net loss ......................................... - - (48.4) - (48.4)
-------- ------------ -------------- ------------- -------
Balance at December 31, 1995 ..................... 1.0 92.4 114.1 0.3 207.8
Exercise of stock options ........................ - 0.5 - - 0.5
Tax benefit from exercise of stock options ....... - 0.2 - - 0.2
Currency translation adjustment .................. - - - (0.4) (0.4)
Net loss ......................................... - - (464.4) - (464.4)
-------- ------------ -------------- ------------- -------
Balance at December 31, 1996 ..................... $1.0 $93.1 ($350.3) ($0.1) ($256.3)
======== ============ ============== ============= =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-5
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
For the years ended
December 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ................................................................... ($464.4) ($48.4) $ 61.8
-------- -------- --------
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization ..................................................... 56.6 39.2 14.9
Writedown of goodwill and other intangibles ....................................... 278.5 - -
Provision (benefit) for deferred income taxes ..................................... 24.2 (5.2) 6.0
Extraordinary item, net ........................................................... - 3.3 -
Undistributed earnings of unconsolidated subsidiaries ............................. (0.8) (1.7) (10.2)
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 .......................................... 11.7 17.4 -
Other ............................................................................. - (0.5) (1.7)
Changes in assets and liabilities, net of effect of acquisitions and a previously
unconsolidated subsidiary:
Decrease (increase) in accounts receivable, net .................................. 8.1 (7.5) (79.7)
Decrease (increase) in inventories ............................................... 2.1 (9.1) (9.3)
Decrease (increase) in other assets .............................................. 6.7 (19.3) (16.9)
(Decrease) increase in accounts payable .......................................... (8.3) 14.9 4.3
Increase in accrued expenses and other ........................................... 4.7 31.7 43.5
-------- -------- --------
Total adjustments ................................................................... 361.5 51.9 (49.1)
-------- -------- --------
Net cash (used in) provided by operating activities .............................. (102.9) 3.5 12.7
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (including product development and package design costs) ..... (43.2) (42.5) (4.2)
Net proceeds from sale of investment in Toy Biz ................................... 35.7 - -
Acquisition of SkyBox, net of cash and cash equivalents acquired .................. - (162.5) -
Acquisition of Panini, net of cash and cash equivalents acquired .................. - - (133.2)
Other acquisitions, net of cash and cash equivalents acquired ..................... - (27.5) (15.6)
Other investing activities ........................................................ (3.3) 2.0 (5.1)
-------- -------- --------
Net cash used in investing activities ............................................ (10.8) (230.5) (158.1)
-------- -------- --------
Cash flows from financing activities:
Net (repayments) borrowings under term portion of credit agreements ............... (5.3) 184.8 92.3
Net borrowings under revolving portion of credit agreement ........................ 47.5 5.0 44.5
Net borrowings under DIP Loan ..................................................... 10.0 - -
Net borrowings (repayments) under former credit agreement and other debt .......... 27.0 20.2 (9.5)
Net proceeds to Toy Biz from common stock offerings ............................... 9.3 44.1 -
Proceeds from exercise of stock options ........................................... 0.5 8.1 22.0
Debt issuance costs ............................................................... (3.2) (9.6) (2.2)
Other financing activities ........................................................ (1.0) 0.4 -
-------- -------- --------
Net cash provided by financing activities ........................................ 84.8 253.0 147.1
-------- -------- --------
Effect of exchange rate changes on cash ............................................. 0.4 2.0 (0.6)
-------- -------- --------
Cash balance from previously unconsolidated subsidiary .............................. - 7.5 -
-------- -------- --------
Net (decrease) increase in cash ..................................................... (28.5) 35.5 1.1
Cash, at beginning of period ........................................................ 53.6 18.1 17.0
-------- -------- --------
Cash, at end of period .............................................................. $25.1 $53.6 $18.1
======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
F-6
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated financial statements include the
accounts of Marvel Entertainment Group, Inc. ("Marvel") and its subsidiaries
(collectively, the "Company"). The consolidated financial statements of the
Company include the operations of SkyBox International Inc. and its
subsidiaries (collectively, "SkyBox") from the date of its acquisition on April
27, 1995, the operations of Panini S.p.A. and its subsidiaries (collectively,
"Panini") from the date of its acquisition on August 31, 1994 and the
consolidation of Toy Biz, Inc. and its subsidiaries (collectively "Toy Biz")
since its initial public offering on March 2, 1995 (the "Toy Biz IPO")(See Note
4). The Company's operations consist of (i) the publication and sale of comic
books and children's magazines, (ii) the manufacture and distribution of sports
and entertainment trading cards and children's activity sticker collections,
(iii) consumer products, media and advertising-promotion 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. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Marvel was incorporated on December 2, 1986, in the State of Delaware.
Marvel (Parent) Holdings Inc. ("Parent Holdings"), an indirect wholly owned
subsidiary of Andrews Group Incorporated ("Andrews Group"), a wholly owned
subsidiary of MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings"), a
corporation wholly owned through Mafco Holdings Inc. ("Mafco" and together with
MacAndrews Holdings, "MacAndrews & Forbes") by Ronald O. Perelman, together
with additional subsidiaries of Mafco, owned approximately 81.2% of the common
stock, par value, $.01 per share, ("Common Stock") of the Company as of
December 31, 1996. See Note 3.
The Company experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the Credit
Agreements (as defined below, see Note 5) beginning in the Fall of 1996. The
Company commenced discussions in the Fall of 1996 with Andrews Group, its
indirect parent, regarding an equity infusion in order to provide for the
Company's cash requirements and with The Chase Manhattan Bank, agent bank for
the Credit Agreements, regarding a restructuring of the Credit Agreements.
On December 27, 1996, Marvel along with certain of its operating and
inactive subsidiaries, Fleer Corp. ("Fleer"); SkyBox International, Inc.
("SkyBox"); Marvel Characters, Inc.; Heroes World Distribution, Inc. ("Heroes
World"); The Asher Candy Company; Malibu Comics Entertainment, Inc. ("Malibu");
Frank H. Fleer Corp. and Marvel Direct Marketing Inc. (along with Marvel, the
"Debtor Companies") filed petitions for relief and a plan of reorganization
under chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code")
in the United States Bankruptcy Court for the District of Delaware. Panini
S.p.A. ("Panini"), Marvel Restaurant Venture Corp. ("Marvel Restaurants") (a
general partner in the Joint Venture developing the Marvel Mania restaurants
(each as defined below), see "Business -- Strategic Initiatives -- Marvel
Mania") and Toy Biz, Inc. ("Toy Biz"), all of which are active, as well as
certain inactive subsidiaries did not file petitions under the Bankruptcy Code.
The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including salaries,
wages and benefits to all of its employees, trade creditors and independent
contractors and to continue funding its strategic initiatives. On January 24,
1997 the Bankruptcy Court approved a $100 debtor-in-possession financing
facility (the "DIP Loan"), which is provided by a syndicate of lenders,
including The Chase Manhattan Bank, as agent bank, and is available to the
Company until June 30, 1997. The DIP Loan is subject to covenants and events of
default including a change of control of Marvel (as defined therein). See Note
5.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Sales are recorded upon shipment of products. Sales made on a
returnable basis are recorded net of provisions for estimated returns. These
estimates are revised, as necessary, to reflect actual experience and market
conditions. Subscription revenues generally are collected in advance for a one
year subscription and are recognized as income on a
F-7
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
pro-rata basis over the subscription period. Income from licensing of
characters owned by the Company is recorded at the time characters are
available to the licensee and collection is reasonably assured. Receivables
due more than one year beyond the balance sheet date are discounted to their
present value.
ADVERTISING EXPENSE
Advertising production costs are expensed when the advertisement is
first run. Media advertising costs are expensed on the projected sales method
during interim periods. Advertising expense was $69.0, $69.2, and $38.5 in
1996, 1995, and 1994, respectively. The amount of advertising costs included in
prepaid expenses and other as of December 31, 1996 and 1995 was $2.2 and $2.8,
respectively.
ROYALTIES
Minimum guaranteed royalties, as well as royalties in excess of
minimum guarantees, are generally expensed as incurred based on sales of
related products.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
principal areas of judgment relate to provision for returns and other sales
allowances, doubtful accounts, the realizability of inventories, goodwill and
other intangible asset impairment and pro forma information related to stock
options.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
(FIFO)) or market.
PROPERTY, PLANT AND EQUIPMENT
All expenditures for additions and improvements to property, plant and
equipment are capitalized and normal repairs and maintenance are charged to
expense as incurred. Construction-in-progress principally includes machinery
and equipment being constructed for the Company by outside vendors under
contract.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles, except goodwill related to the trading
card business, are amortized on the straight-line basis principally over 40
years. The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of goodwill and other intangibles is to
review the carrying value of goodwill and other intangibles if the facts and
circumstances suggest that they may be impaired. If this review indicates that
goodwill and other intangibles will not be recoverable, as determined based on
the undiscounted future cash flows of the Company, the carrying value of
goodwill and other intangibles will be reduced to its estimated fair value.
During the fourth quarter of 1996, the Company recorded a noncash
write-down to goodwill and other intangibles of approximately $273.0 that has
been classified as amortization of goodwill and other intangibles. Remaining
goodwill associated with the Company's trading cards operations is
approximately $110.0, which will be amortized on the straight-line basis over
15 years. See Note 13.
F-8
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
DEFERRED CHARGES
Deferred charges and other includes deferred debt issue costs, which
are mainly costs associated with the Company's credit facilities that are
amortized over the remaining term of the related agreements (see Note 5).
TRANSLATION OF FOREIGN CURRENCIES
The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency. Assets and liabilities of subsidiaries are translated at the exchange
rate in effect at year-end. Income statement accounts and cash flows are
translated at the average rate of exchange prevailing during the period.
Translation adjustments arising from the use of differing exchange rates are
included in the cumulative translation adjustment account in stockholders'
equity. Transaction adjustments arising from the use of differing exchange
rates, including intercompany account balances, are included in net income.
EARNINGS PER SHARE
Earnings per share have been computed using the weighted average
number of common and common equivalent shares for the respective period, except
for 1995 and 1996, where the effect of common equivalent shares is
antidilutive.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. CHAPTER 11 REORGANIZATION
Certain significant and long-term changes in market conditions
associated with the Company's publishing and trading cards businesses have
significantly and adversely affected the Company's net revenues and operating
results in recent periods.
The Company experienced significant operating losses during 1995 and
1996, and failed to satisfy certain financial covenants contained in the Credit
Agreements (as defined below, see Note 5) beginning in the Fall of 1996. The
Company commenced discussions in the Fall of 1996 with Andrews Group, its
indirect parent, regarding an equity infusion in order to provide for the
Company's cash requirements and with The Chase Manhattan Bank, agent bank for
the Credit Agreements, regarding a restructuring of the Credit Agreements.
On December 27, 1996, the Debtor Companies filed petitions for relief
and a plan of reorganization under chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware. Panini, Marvel
Restaurants and Toy Biz, all of which are active, as well as certain inactive
subsidiaries did not file petitions under the Bankruptcy Code.
The Plan of Reorganization, filed on December 27, 1996 (as amended,
the "Plan"), contemplated that pursuant to the Stock Purchase Agreement dated
December 26, 1996, between Andrews Group and Marvel, Andrews Group, or an
affiliate thereof, would acquire from Marvel, a number of shares of Common
Stock (or its equivalent) that would represent 80.1% of the shares of
reorganized Marvel after giving effect to such acquisition, in consideration
for $365 in cash or, at the option of Andrews Group, shares of class A common
stock, par value $.01 per share of Toy Biz (the "Class A Common Stock") or a
combination of the foregoing (the "Andrews Investment"). The Plan contemplated
that in connection with the Andrews Investment, the Company would acquire the
Class A Common Stock not owned by Marvel, Andrews Group or their affiliates
pursuant to a Merger Agreement between Andrews Group and Toy Biz and a Stock
Purchase Agreement with the two other principal stockholders of Toy Biz. The
Plan also contemplated a new $160 credit facility for Toy Biz to be used for
working capital purposes of the Company, including Toy Biz, and to fund the
Company's strategic initiatives. See "Business -- Strategic Initiatives." As of
F-9
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
March 14, 1997, the Company owned 7,394,000 shares of class B common stock
of Toy Biz (the "Class B Common Stock"), representing 26.6% of the equity of
Toy Biz, and 78.4% of the voting power relating to Toy Biz. This plan has
since been withdrawn as described below.
The Debtor Companies received approval from the Bankruptcy Court to
pay on time and in full undisputed pre-petition obligations including salaries,
wages and benefits to all of its employees, trade creditors and independent
contractors and to continue funding its strategic initiatives. On January 24,
1997 the Bankruptcy Court approved a $100 DIP Loan, which is provided by a
syndicate of lenders, including The Chase Manhattan Bank, as agent bank, and is
available to the Company until June 30, 1997. The DIP Loan is subject to
covenants and events of default including a change of control of Marvel (as
defined therein). See Note 5.
In 1993, Marvel Holdings Inc. ("Marvel Holdings") issued approximately
$517.4 principal amount at maturity of Senior Secured Discount Notes due 1998.
In 1993, Parent Holdings issued approximately $251.7 principal amount at
maturity of Senior Secured Discount Notes due 1998 (the "Parent Holdings
Notes"). In 1994, Marvel III Holdings Inc. ("Marvel III" and collectively with
Marvel Holdings and Parent Holdings, the "Marvel Holding Companies") issued
$125 principal amount of 9-1/8% Senior Secured Notes due 1998 (the "Marvel III
Notes"). Marvel Holdings and Parent Holdings have, in the aggregate, pledged
77,302,326 shares of the Company's common stock to secure such notes (the
"Pledged Common Stock"), and an additional approximately 2.9 million shares are
subject to a negative pledge under the indenture to the notes issued by Marvel
Holdings. In addition, Parent Holdings has pledged the common stock of Marvel
Holdings to secure the Parent Holding Notes, and Marvel III has pledged the
common stock of Parent Holdings to secure the Marvel III Notes (collectively
with the Pledged Common Stock, the "Pledged Stock").
On December 27, 1996, the Marvel Holding Companies filed voluntary
petitions for relief under chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court for the District of Delaware. The chapter 11 cases
commenced by the Marvel Holding Companies have not been procedurally
consolidated and are not jointly administered with the Debtor Companies'
chapter 11 cases.
On January 9, 1997, the United States Trustee appointed a committee of
creditors holding unsecured claims against the Marvel Holding Companies (the
"Creditors Committee") under section 1102(a) of the Bankruptcy Code. The
members of the Creditors Committee, as originally appointed, include: The Bank
of New York, High River Limited Partnership, Westgate International, L.P.,
Schultz Investments, WHERCO, Inc., M3, LLC and United Equities Commodities
Company.
On January 13, 1997, the Creditors Committee filed a motion (the "Stay
Relief Motion") in the Holdings Companies' chapter 11 cases seeking (i) relief
from the automatic stay to permit LaSalle National Bank, as successor indenture
trustee (the "Holding Companies' Trustee"), on behalf of the holders of the
notes issued by the Marvel Holding Companies, to foreclose upon, and vote, the
Pledged Stock and (ii) dismissal of the Marvel Holding Companies' chapter 11
cases. On February 26, 1997, the Bankruptcy Court entered an order granting
relief from the automatic stay to allow the Holding Companies' Trustee to vote
and to foreclose upon the Pledged Stock. On February 27, 1997, the Company and
the Marvel Holding Companies filed a notice of appeal with respect to such
order.
On February 12, 1997, the Office of the United States Trustee
appointed a committee of equity security holders of the Debtor Companies under
section 1102(a)(1) of the Bankruptcy Code (the "Equity Committee"). The Equity
Committee presently consists of: Barclay's Global Investors, Marty Solomon,
Robert A. Della Camera, Peter E. Kelly, Jr., Gladys V. Veidemanis and Ronald
Cantor.
On March 7, 1997, Andrews Group exercised its right to terminate the
Stock Purchase Agreement with the Company. On the same date, Andrews Group
informed Toy Biz and the two principal stockholders of Toy Biz that, as a
result of the termination of the Andrews Investment, a condition to closing
under the Merger Agreement with Toy Biz and the Stock Purchase Agreement would
not be satisfied, that Andrews Group did not intend to waive the
F-10
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
satisfaction of such condition and therefore the transaction contemplated by
such agreements would not be consummated. As a consequence of the termination
of the Stock Purchase Agreement, the Plan has been withdrawn.
On March 7, 1997, the Creditors Committee indicated that it would make
a proposal whereby the holders of Common Stock (other than Mafco and its
affiliates) and holders of the notes of the Marvel Holding Companies would make
a $365 infusion into the Company as part of a new Plan of Reorganization
through a rights offering that would be backstopped by certain members of the
Creditors Committee, including an entity controlled by Carl Icahn (the "Icahn
Group") (as subsequently amended, the "Committee Proposal"). The Committee
Proposal did not specify whether all of the $365 would be added to the equity
of the Company or whether a portion of the proceeds would be used to repay
borrowings under the Credit Agreements, and does not contemplate Toy Biz
becoming a wholly owned subsidiary of Marvel. The Committee Proposal
contemplated that prior to confirmation of any plan of reorganization
reflecting the Committee Proposal, the current Board of Directors of the
Company would be replaced by designees of the Creditors Committee. Such
proposal was subject to further negotiations with the Company and the Company's
bank lenders, but an agreement with these entities was never reached.
On March 19, 1997, the Creditors Committee notified the Company that
on March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of the Company and the Holding
Companies. On March 24, 1997, the Court in the Debtor Companies' bankruptcy
cases issued a restraining order preventing the Creditors Committee and the
Holding Companies' Trustee from voting the Pledged Stock or otherwise replacing
the Board of Directors of the Company and determined that the Creditors
Committee and the Holding Companies' Trustee must comply with the procedural
requirements of Section 362 of the Bankruptcy Code to seek relief from the
automatic stay to take such action. The Court, however, also ruled that the
Creditors Committee and Holding Companies' Trustee could replace the Board of
Directors of Marvel Holdings and Parent Holdings. On March 28, 1997, the
Creditors Committee and the Holding Companies' Trustee filed a motion to lift
the automatic stay in the Debtor Companies' cases in order to permit the
Creditors Committee and the Holding Companies' Trustee to replace the Board of
Directors of Marvel. A hearing date on such motion has been set for
May 14, 1997. On the same date, the Creditors Committee filed an emergency
appeal of the restraining order of the Bankruptcy Court issued on
March 24, 1997 preventing the replacement of the Board of Directors of Marvel.
A briefing schedule has been set for the emergency appeal and a hearing date
for such appeal has been set for May 1, 1997.
There can be no assurance that any plan of reorganization under the
Bankruptcy Code reflecting the Committee Proposal or a proposal made by any
other party will be proposed, or that if a plan is proposed, such plan of
reorganization will be confirmed under the Bankruptcy Code.
If the Company is unable to obtain confirmation of a plan of
reorganization, its creditors or equity security holders may seek other
alternatives for the Company, including bids for the Company or parts thereof
through an auction process.
The accompanying consolidated financial statements have been prepared
on a going concern basis, which assumes continuity of operations, realization
of assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Chapter 11 filings and circumstances relating to
these events, such realization of assets and liquidation of liabilities is
subject to significant uncertainty. These conditions raise substantial doubt as
to the Company's ability to continue as a going concern.
Although there can be no assurance, the Company believes that
borrowings under the DIP Loan and internally generated funds will be sufficient
through the date of maturity of the DIP Loan to enable the Debtor Companies to
meet their consolidated cash requirements, including debt service. The DIP Loan
expires April 30, 1997 and the maturity of the DIP Loan may be extended at the
option of Marvel to June 30, 1997. As part of the Plan, a group of lenders had
committed to lend $160 to Toy Biz which could be used by the Company and its
subsidiaries, including Toy Biz, to fund working capital and strategic
investments and repay borrowings outstanding under the DIP Loan. Such
F-11
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
commitments have been terminated as a result of the withdrawal of the Andrews
Investment and the Plan. In addition the DIP Loan is subject to a number of
events of default and conditions of borrowing. In the event borrowings under
the DIP Loan become due either upon maturity or an event of default, prior to a
plan of reorganization being confirmed under the Bankruptcy Code and
consummated, then the Debtor Companies will have to seek one or more
alternatives to provide for its cash requirements (including the repayment of
borrowings under the DIP Loan), including seeking alternative
debtor-in-possession financing and/or sales of assets and/or sales of one or
more of the Company's businesses. Although there can be no assurance, the
Company believes that its Panini subsidiary should be able to meet its cash
requirements, including for debt service and repayment, from permissible
advances by Marvel of borrowings under the DIP Loan, local borrowings and
internally generated funds. The Company anticipates that internally generated
funds of Toy Biz and borrowings under Toy Biz's credit agreement will be
sufficient to enable Toy Biz to meet its cash requirements, including debt
service, for the foreseeable future. See Note 5.
As part of the chapter 11 process, the Debtor Companies have received
a significant amount of proofs of claims. The Company is currently in the
process of reviewing these claims and have found that a majority of these
claims are without merit. Although the Company feels that reserves as of
December 31, 1996 are adequate to cover the ultimate liability of these claims,
there can be no assurances that these claims will not be settled for amounts in
excess of these reserves.
Financial accounting and reporting during a Chapter 11 proceeding is
prescribed in Statement of Position No. 90-7, "Financial Reporting by Entities
in Reorganization Under Bankruptcy Code" ("SOP 90-7"). Accordingly, certain
pre-petition obligations, which may be subject to settlement, have been
classified as obligations subject to Chapter 11 reorganization proceedings and
include the following estimated amounts at December 31, 1996:
Total accrued expenses $14.7
===========
Debt:
U.S. Term Loan Agreement $350.0
Amended and Restated Credit Agreement 120.0
Additional Revolving Credit Facility 15.0
-----------
Total debt 485.0
Other long-term liabilities 3.5
-----------
Total long-term liabilities $488.5
======
Total bankruptcy reorganization items of $5.5 for the year ended
December 31, 1996 include professional charges and other costs typical to those
incurred by entities in bankruptcy.
4. TOY BIZ COMMON STOCK OFFERINGS
On March 2, 1995, Toy Biz, completed 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 $9.3 and $35.7, respectively, after
deducting amounts accrued for fees and expenses.
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 consolidated
F-12
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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 26.6% and its voting
control decreased to 78.4%.
In connection with the Toy Biz IPO, Marvel, Mr. Perlmutter, certain
affiliates of Mr. Perlmutter, Mr. Arad and Toy Biz entered into a stockholders'
agreement (the "Stockholders' Agreement"). The Stockholders' Agreement provides
that , upon a change of control of Marvel, Marvel is obligated to convert its
shares of Class B Common Stock into Class A Common Stock, unless Mr. Perlmutter
and Mr. Arad consent to such shares remaining Class B Common Stock. In such an
event the Company would cease to consolidate Toy Biz's results in the
consolidated financial statements of the Company.
5. SHORT-TERM BORROWINGS AND DEBT
Under credit arrangements for short-term borrowings arranged with a
group of banks, Panini may borrow up to Italian Lire 69.5 billion
(approximately $45.4 based on exchange rates at December 31, 1996) on such
terms as Panini and the banks may mutually agree upon. These arrangements
generally do not have termination dates but are reviewed annually for renewal.
At December 31, 1996, the unused portion of the credit lines was Italian Lire
12.4 billion (approximately $8.1 based on exchange rates at December 31, 1996).
The weighted average interest rate on short-term borrowings as of December 31,
1996 was 6.3%.
The Company experienced significant operating losses during 1996 and
failed to satisfy certain financial covenants contained in the Credit
Agreements (as defined below). In addition, the filing of petitions for relief
under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware by the Debtor Companies is an event of default
under the Credit Agreements (as defined below).
At the time that the Debtor Companies commenced their reorganization
cases, they anticipated that their financing needs would be satisfied through a
working capital facility extended by a group of financial institutions. Prior
to the Petition Date, the Debtor Companies undertook to arrange such financing
through different financial institutions and selected Chase Securities Inc. to
arrange such financing. No principal payments on the pre-petition debt of the
Debtor Companies will be made without the approval from the Bankruptcy Court or
until a plan of reorganization defining the repayment terms has been confirmed.
The Debtor Companies received approval from the Bankruptcy Court to pay, on
time and in full, interest on the pre-petition debt of the Debtor Companies
calculated at the applicable non-default rate or rates provided for pursuant to
the Credit Agreements (as defined below).
On the Petition Date, the Bankruptcy Court approved the DIP Loan dated
as of December 27, 1996, among the Company, as borrower, the other Debtor
Companies, as guarantors, and The Chase Manhattan Bank, as lender, on an
interim basis and authorized the Company to borrow up to $20 thereunder based
upon the anticipated cash needs of the Company for a specified period pending a
final hearing thereon.
On January 24, 1997, the Bankruptcy Court entered an order (the "DIP
Order") approving the DIP Loan, as amended by the parties thereto to
incorporate resolutions to issues articulated by the Bankruptcy Court at the
final hearing to consider approval of the DIP Loan. The DIP Order authorized
the Company to incur obligations under the DIP Loan not exceeding the
commitment amount of $100. The DIP Loan is scheduled to expire 120 days from
the Petition Date (extendible at Marvel's option in the absence of default) and
the date of the occurrence of certain specified events.
The liens securing the DIP Loan prime the liens securing the Credit
Agreements (as defined below). The DIP Loan is necessary to the successful
prosecution of the reorganization cases and confirmation of a plan of
reorganization. Loans under the DIP Loan bear interest at a rate per annum
equal to the one month Eurodollar Rate rounded upwards to the next 1/16 of 1%
(as defined in the DIP Loan) , or Alternate Base Rate (as defined in the DIP
Loan) plus the Applicable Margin of 2 1/2% with respect to Eurodollar Loans and
1 1/2% with respect with Alternate Base Rate loans. The interest rate on
Alternate Base Rate Loans at December 31, 1996, was 9.75%. Interest on
Eurodollar Rate Loans is payable at the end of the applicable interest period,
and interest on Alternate Base Rate Loans is payable monthly in arrears. As of
December 31, 1996, $10.0 was borrowed under this facility. At March 28, 1997,
amounts available to borrow under this facility, net of amounts reserved under
letters of credit, were $43.1.
F-13
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
In connection with the Credit Agreements, each of the Debtor Companies
executed security agreements and other collateral documents under which such
Debtor Companies granted the lenders under the Credit Agreements security
interests, liens, and mortgages in all or substantially all of their respective
properties and interests in property as collateral security for the payment and
performance of the obligations owing to such lenders. As at the Petition Date,
such lenders asserted liens against, and claimed an entitlement to adequate
protection of their liens on such properties and interest in property.
The DIP Loan includes various restrictive covenants prohibiting the
Company from, among other things, incurring additional indebtedness, with
certain limited exceptions, making investments, except for certain limited
exceptions, including for the Company's strategic initiatives, and making
dividend, redemption and certain other payments on its capital stock. The DIP
Loan also contains certain customary financial covenants and events of default
for financing of this type, including a change of control covenant and an event
of default if the royalty free license from Marvel to Toy Biz is rejected in
the Company's bankruptcy proceedings.
In connection with approval of the DIP Loan and entry of the DIP
Order, the Debtor Companies consented to a grant of adequate protection to the
holders of Senior Secured Claims in consideration for the right to use cash
collateral and obtain post-petition financing under sections 363 and 364 of the
Bankruptcy Code. Under the DIP Order, the holders of Senior Secured Claims (as
defined in the DIP Order) were granted the following consideration as adequate
protection to the extent of any diminution in the value of their collateral:
(i) a priority claim as contemplated by section 507(b) of the Bankruptcy Code,
(ii) periodic cash payments in an amount equal to current interest at the
applicable non-default rate or rates provided for pursuant to the Credit
Agreements and accrued letter of credit fees calculated at the rate or rates
provided for in the Credit Agreements, and (iii) a lien on the properties and
interests in property of Marvel and the guarantors of the Credit Agreements
(including the capital stock of Toy Biz owned by Marvel), which lien shall have
a priority junior to the priming and other liens to be granted in favor of The
Chase Manhattan Bank under the DIP Loan.
Debt consists of the following:
December 31, December 31,
1996 1995
---------------- --------------
U.S. Term Loan Agreement------------------ $ 350.0 $ 350.0
Amended and Restated Credit Agreement----- 120.0 87.5
Additional Revolving Credit Facility------ 15.0 -
Term Loan Agreement----------------------- 139.3 139.5
Other long term debt---------------------- 16.3 9.5
-------- --------
Subtotal---------------------------------- 640.6 586.5
Less amount reclassified*----------------- (485.0) -
Less current maturities------------------- (10.6) (5.2)
-------- --------
Long-term debt---------------------------- $ 145.0 $ 581.3
======== ========
* - Amounts as of December 31, 1996 have been reclassed to "Liabilities
subject to settlement under reorganization" in accordance with bankruptcy
reporting prescribed by Statement 90-7. See Note 3.
On December 20, 1996, the banks and financial institutions that were
parties to the Credit Agreements entered into a Standstill Agreement and
Amendment (the "Standstill Agreement") which grants the Company the right, for
any outstanding loans under the Credit Agreements to remain as either
Eurodollar or Eurocurrency Loans during the Standstill Period (as defined
below). The Standstill Agreement also provides that the commitments under the
Credit Agreements will not automatically terminate or be accelerated upon the
commencement of the reorganization cases but rather will be suspended and
reinstated upon confirmation of the Plan. Unless a payment default is
continuing or certain other termination events are triggered, each lender under
the Credit Agreements will agree not to exercise any remedies against any
subsidiary of the Company which is not one of the Debtor Companies during the
Standstill Period. Each lender under the Credit Agreements agreed not to
transfer such Claim
F-14
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
to any entity that does not agree to be bound by the Standstill Agreement or
support the Plan. Pursuant to the Standstill Agreement, the lenders under the
Credit Agreements will permit the loans outstanding thereunder to be
outstanding as Eurodollar Loans (or the equivalent) during the Standstill
Period provided that, in the event that the interest period for any such
Eurodollar Loans is longer than one month, such interest period shall have a
scheduled expiry on or prior to June 30, 1997. The Standstill Period is the
period commencing on December 27, 1996 and ending on June 30, 1997 (or,
sooner, if a Final Order is entered confirming the Plan prior to such date or
a payment default occurs).
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, as
administrative agent (the "Amended and Restated Credit Agreement"), and the
outstanding balance of the Term Loan Agreement, as defined below. The
Applicable Margin under the Amended and Restated Credit Agreement for Alternate
Base Rate loans is 2% and for Eurodollar Rate loans is 3%. The interest rate on
Eurodollar Rate Loans at December 31, 1996 was approximately 8-17/32% to 8-7/8%
per annum, depending upon the length of the relevant interest period.
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, 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, 3% and (b)
with respect to Alternate Base Rate loans, 2%. The interest rate on Eurodollar
Rate Loans at December 31, 1996, was approximately 8 19/32% to 8 11/16%
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").
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 3% and (b) with respect to Negotiated Rate Loans,
2%. The interest rate on Eurocurrency Rate Loans at December 31, 1996, was
approximately 10 5/32%. 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).
F-15
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
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 was subsequently reduced to $15.0; (2) secure the
borrowings with substantially all 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, the additional revolving credit facility, the additional
revolving credit facility 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
December 31, 1996 was 8.5%.
In conjunction with the Toy Biz IPO, Toy Biz entered into a three year
$30.0 revolving line of credit with a syndicate of banks for which The Chase
Manhattan Bank 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.
The average cost of borrowings for the U.S. Term Loan Agreement, the
Amended and Restated Credit Agreement and the Term Loan Agreement was
approximately 8.83% for the year ended December 31, 1996. The average cost of
borrowings for the U.S. Term Loan Agreement, the Amended and Restated Credit
Agreement and the Term Loan Agreement was approximately 8 7/8% for the year
ended December 31, 1995. The average cost of borrowings for the Amended and
Restated Credit Facility for the year ended December 31, 1994 was 5.6% , and
the average cost of borrowings for the Term Loan Agreement was 9 1/2 % for the
four months ended December 31, 1994.
The average cost of borrowings for the Toy Biz credit facility was
approximately 8 1/4% and 8 1/2% for the years ended December 31, 1996 and 1995,
respectively.
Interest expense was $60.8, $47.1, and $19.1 in 1996, 1995, and 1994,
respectively. Interest paid was $60.6, $42.7, and $18.1 in 1996, 1995, and
1994, respectively. The revolving credit portion of the Amended and Restated
Credit Agreement at December 31, 1996 was fully drawn. The Amended and Restated
Credit Agreement requires the Company to pay a commitment fee of 1/4 to 3/8 of
1% per annum on the unused portion.
Due to the extenuating circumstances involving the Credit Facilities
and other debt as a result of the chapter 11 filings, it is not practicable to
estimate the fair value of these obligations as of December 31, 1996.
Financing charges of $21.2 were incurred in connection with the
Company's credit facilities which were deferred and are being amortized over
the remaining term of the respective facilities.
On February 27, 1997, the Bankruptcy Court entered an order lifting
the automatic stay in the chapter 11 cases of the Marvel Holding Companies. On
March 19, 1997, the Creditors Committee notified the Company that
F-16
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
on March 25, 1997 it would cause the Holding Companies' Trustee to vote the
Pledged Stock to replace the Board of Directors of the Company and the Holding
Companies. On March 24, 1997, the Court in the Debtor Companies' Bankruptcy
cases issued a restraining order preventing the Creditors Committee and the
Holding Companies' Trustee from voting the Pledged Stock or otherwise
replacing the Board of Directors of the Company. On March 28, 1997, the
Creditors Committee and the Holding Companies' Trustee filed a motion with the
Bankruptcy Court seeking a lifting of the automatic stay in the Debtors
Companies' cases in order to permit the Creditors Committee and the Holding
Companies' Trustee to replace the Board of Marvel. A hearing date on such
motion has been set for May 14, 1997. On the same date, the Creditors Committee
filed an emergency appeal of the restraining order of the Bankruptcy Court
issued on March 24, 1997 preventing the replacement of the Board of Directors
of Marvel. A briefing schedule has been set for the emergency appeal and a
hearing date for such appeal has beeen set for May 1, 1997. If the Holding
Companies' Trustee were to among other things, vote the Pledged Stock to
replace the Board of Directors of Marvel, such action would likely be a
change of control of Marvel and therefore a default under, among other
agreements, the DIP Loan.
The scheduled aggregate maturities of the Company's long term debt,
not subject to settlement under reorganization, per the underlying credit
agreements that support each debt facility are as follows:
For the Years Ending December 31,
---------------------------------
1997------------------------- $ 10.6
1998------------------------- 17.2
1999------------------------- 27.8
2000------------------------- 56.5
2001------------------------- 43.5
2002 and thereafter---------- -
----------
$ 155.6
==========
The scheduled aggregate maturities of the Company's long term debt
which is subject to settlement under reorganization per the underlying credit
agreements that support each debt facility are as follows:
For the Years Ending December 31,
---------------------------------
1997------------------------- $ 15.0
1998------------------------- -
1999------------------------- 57.5
2000------------------------- 125.0
2001------------------------- 187.5
2002 and thereafter---------- 100.0
----------
$ 485.0
==========
6. EMPLOYEE BENEFIT PLANS
SAVINGS PLANS
The Marvel Entertainment Group, Inc. Savings and Investment Plan is a
defined contribution plan qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended, covering all full-time non-union salaried and
hourly employees who have at least one year of service and matches
contributions by employees in an amount equal to 100% of the first 3% of
eligible compensation contributed and 25% of the next 3% of eligible
compensation contributed, up to a maximum of 3.75% of the employees'
compensation. In addition, Toy Biz has a 401(k) Profit Sharing Plan and Trust
that covers all employees of Toy Biz over the age of twenty who have been
employed by Toy Biz for at least six months. Toy Biz matches contributions by
employees in an amount equal to 20% of that employee's contribution that does
not exceed 6% of the employee's compensation for that period. The provisions
for contributions under these plans were $.5 in 1996, 1995 and 1994.
PENSION PLANS AND POSTRETIREMENT BENEFITS
Fleer and SkyBox have noncontributory defined benefit pension plans
for salaried employees. Effective as of September 1, 1996, such pension plans
were merged with Fleer becoming the plan sponsor. The benefits are based on the
employee's years of service and highest five years of compensation.
Contributions are intended to provide for benefits attributed to service to
date and for those expected to be earned in the future. Employees are eligible
to participate in the pension plan after two years of service at which time
they are fully vested. The projected benefit obligation was $17.7 and $17.9 and
plan assets were approximately $14.5 and $15.0 at December 31, 1996 and 1995,
respectively. Pension expense for all periods was insignificant.
<PAGE>
Fleer has a postretirement medical and life insurance plan for
salaried employees who retire after the age of 62. The Company accounts for
these benefits in accordance with Statement of Financial Accounting Standards
No. 106 "Employers' Accounting for Postretirement Benefits Other Than
Pensions". Benefits include postretirement coverage of medical insurance for
the life of the retiree and spouse. The plan has only a limited number of
participants. The Company's policy is to fund postretirement benefit costs as
payments are made to participants. At December 31, 1996, 1995 and 1994, and for
the years then ended, the postretirement benefit obligation and expense were
insignificant.
F-17
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STOCK OPTION PLAN
Under the terms of the Marvel Entertainment Group, Inc. Amended and
Restated Stock Option Plan (the "Stock Option Plan"), incentive stock options
("ISOs"), non-qualified stock options ("NQSOs") and stock appreciation rights
("SARs") may be granted to key employees of, or consultants to, the Company and
any of its affiliates from time to time. In May 1995, the Company was
authorized to increase the aggregate number of shares of Common Stock as to
which options and rights may be granted under the Stock Option Plan from
11,000,000 to 16,000,000 shares, including options described below.
Information with respect to options under the Stock Option Plan
follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Option price per share Price
----------------- -------------------------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1994---------- 9,120,333 $ 2.0625 - $26.75
Canceled--------------------------------- (10,001) $ 2.0625 - $14.50
Exercised------------------------------- (3,012,732) $ 2.0625 - $14.50
Granted--------------------------------- 1,975,000 $ 13.6875 - $18.50
-----------------
Outstanding at December 31, 1994-------- 8,072,600 $ 2.0625 - $26.75
Exercised------------------------------- (1,046,940) $ 2.0625 - $14.50
Canceled-------------------------------- (1,267,002) $ 2.0625 - $17.625
Granted--------------------------------- 2,200,000 $ 14.25 - $15.50
-----------------
Outstanding at December 31, 1995-------- 7,958,658 $ 2.0625 - $26.75
Exercised------------------------------- (106,993) $ 2.0625 - $7.75 $11.945
Canceled-------------------------------- (1,128,668) $ 2.0625 - $26.75 $15.658
Granted--------------------------------- 1,745,000 $ 5.00 - $12.625 $9.850
-----------------
Outstanding at December 31, 1996-------- 8,467,997 $ 2.0625 - $16.75
=================
</TABLE>
At December 31, 1996, 6,078,867 shares (6,656,000 shares at December
31, 1995) were exercisable and 1,722,343 shares (1,732,000 shares at December
31, 1995) were available for future grants of options and rights. The weighted
average fair value of options granted under the Stock Option Plan during 1996
was $.67 per share.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted Average Number
Ranges of Exercise Outstanding at Remaining Weighted Average Exercisable at Weighted Average
Prices December 31, 1996 Contractual Life Exercise Price December 31, 1996 Exercise Price
------------- ----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$2.00- $5.00 1,546,000 5.4 $2.54 1,296,000 $2.06
$5.01-$10.00 3,468,300 6.7 $8.87 3,067,500 $8.90
$10.01-$15.00 2,973,700 8.3 $13.71 1,502,033 $13.99
$15.01-$20.00 479,997 8.2 $16.26 213,334 $16.04
------- -------
8,467,997 7.1 $9.83 6,078,867 $9.83
========= =========
</TABLE>
Toy Biz's 1995 Stock Option Plan provides for the issuance of stock
options ("Toy Biz Options") and SARs for up to 1,350,000 shares of Class A
Common Stock at a fair market value at the time of grant. One-third of the Toy
Biz Options become exercisable at the date of grant (the "Grant Date"), and the
balance of the Toy Biz Options become exercisable in equal increments on the
first and second anniversaries of the Grant Date. At December 31, 1996 and
1995, Toy Biz Options for 691,211 and 329,187, respectively were exercisable.
As of December 31,
F-18
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1996, no SARs have been granted and Toy Biz Options with respect to 186,321
shares of Class A Common Stock are available for future grant. The weighted
average fair value of Toy Biz Options granted during 1995 and 1996 were $6.85
per share and $6.15 per share, respectively.
Information with respect to options under Toy Biz's 1995 Stock Option
Plan follows:
Shares Weighted Average
------ Exercise Price
--------------
Outstanding at January 1, 1995 -- --
Forfeited (33,268) $18.000
Exercised (20,130) $18.000
Granted 1,049,000 $18.173
---------
Outstanding at December 31, 1995 995,602 $18.183
Exercised (22,664) $18.000
Forfeited (47,303) $18.119
Granted 195,250 $17.111
---------
Outstanding at December 31,1996 1,120,885 $18.002
=========
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on date of grant, no compensation expense
is recognized. The Company has adopted the disclosure-only provisions under
FASB Statement No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"). For the purposes of SFAS 123 pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
1996 1995
------------- -------------
Net loss, as reported ($464.4) ($48.4)
Pro Forma net loss ($470.4) ($52.0)
Pro Forma net loss per share ($4.62) ($0.51)
============= =============
The fair value for each option grant under the Stock Option Plan was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for the various grants made during
1995 and 1996: risk free interest rates ranging from 5.40% to 6.53%; no
dividend yield; expected volatility ranging from .466 to .487 and expected life
of three years. The fair value for each option grant under Toy Biz's 1995 Stock
Option Plan was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for the various
grants made during 1995 and 1996: risk free interest rates ranging from 5.26%
to 7.19%; no dividend yield; expected volatility of .354 and expected lives of
three to five years. The option valuation models were developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the option valuation models require
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The value of the options granted under the Stock Option Plan is
directly related to the value of the Common Stock. The closing sale prices for
Common Stock and Class A Common Stock as of March 27, 1997 were $2.50 per share
and $9.25 per share, respectively. Presently, there is no plan of
reorganization. There can be no assurances
F-19
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
that the holders of equity interests of Marvel will receive any consideration
for such equity interests under any plan of reorganization.
7. INCOME TAXES
The Company, with the exception of Toy Biz, is included in the
consolidated federal income tax return, and in some cases the state income tax
returns, of Mafco and its subsidiaries. Toy Biz files separate federal and
state income tax returns. For all periods presented, federal and state income
taxes are provided as if the Company filed its own income tax returns.
The Company records income taxes using a liability approach for
financial accounting and reporting which results in the recognition and
measurement of deferred tax assets based on the likelihood of realization of
tax benefits in future years.
Since May 19, 1993, the Company has been operating under a tax sharing
agreement with Mafco or an affiliate of Mafco which provides that federal
income taxes be paid as if the Company were a separate taxpayer. The Company
filed separate federal income tax returns for the periods July 23, 1991 (the
date of the initial public offering) through May 18, 1993. Federal income taxes
paid to Mafco affiliates were $0.1 and $13.6 in 1995 and 1994, respectively.
Refunds received from Mafco affiliates were $17.1 in 1996 relating to prior
years. Total income taxes paid (refunded), including the payments to and from
Mafco affiliates, were $(6.1), $16.5 and $15.9 in 1996, 1995 and 1994,
respectively.
Components of the provision for income taxes consisted of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Income (loss) before provision for taxes:
Domestic............................... $(421.2) $ (56.6) $ 92.7
Foreign................................ (9.8) 34.6 11.6
----------- ---------- -----------
$ (431.0) $ (22.0) $ 104.3
=========== ========== ===========
Provision (Benefit) for income taxes:
Current:
Federal................................ $ (5.0) $ (0.1) $ 25.9
State and local........................ 2.9 2.9 5.7
Foreign................................ (0.4) 8.1 4.3
----------- ---------- -----------
(2.5) 10.9 35.9
----------- ---------- -----------
Deferred:
Federal................................ 22.8 (12.9) 3.2
State and local........................ 4.2 1.0 1.7
Foreign................................ (2.8) 6.7 1.7
----------- ---------- -----------
24.2 (5.2) 6.6
----------- ---------- -----------
$ 21.7 $ 5.7 $ 42.5
=========== ========== ===========
</TABLE>
During 1996, the Company recorded a valuation allowance against its
domestic and certain foreign deferred tax assets as management determined that
it was not more likely than not that such assets would be realized in the
future.
F-20
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
A portion of the deferred foreign tax provision for the year ended
December 31, 1994 has been recorded as a credit to goodwill.
Deferred taxes result from temporary differences in the recognition of
income and expenses for financial and income tax reporting purposes and
differences between the fair value of assets acquired in business combinations
accounted for as purchases and their tax bases. The approximate effect of
temporary differences that gave rise to deferred tax balances at December 31,
1996 and 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Accounts receivable.................................... $3.5 $5.2
Inventory.............................................. 13.6 2.8
Sales returns reserves................................. 21.7 35.2
Restructuring reserves................................. 22.4 10.4
Reserve related to foreign investments................. 7.5 7.3
Net operating loss carryforwards....................... 61.4 18.1
Tax credit carry forwards.............................. 4.7 -
Other.................................................. 11.2 4.6
--------- ---------
Total gross deferred tax assets........................ 146.0 83.6
Less valuation allowance............................... (112.5) (17.4)
--------- ---------
Net deferred tax assets................................ 33.5 66.2
--------- ---------
Deferred tax liabilities:
Equity investments..................................... 3.4 8.6
Depreciation/ amortization............................. 20.9 14.3
Licensing income....................................... 6.6 14.4
Other.................................................. 2.5 1.2
--------- ---------
Total gross deferred tax liabilities................... 33.4 38.5
--------- ---------
Net deferred tax asset.......................................... $ 0.1 $ 27.7
========= =========
</TABLE>
The total valuation allowance for 1996 and 1995 includes $12.8, which
if realized, will be accounted for as a reduction of goodwill.
The income tax on (loss) income before provision for income taxes,
minority interest and extraordinary item varies from the current statutory
federal income tax as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Statutory rate.................................................. (35.0)% (35.0)% 35.0%
State and local taxes, net...................................... (2.2) 16.0 4.6
Non-deductible amortization expense............................. 21.5 17.5 2.4
Dividends received deduction.................................... - - (2.3)
Foreign taxes................................................... (0.8) 18.8 0.7
Increase in Valuation Allowance................................. 21.6 - -
Other........................................................... (0.1) 8.6 0.3
---------- --------- ----------
Total provision for income taxes................................ 5.0% 25.9% 40.7%
========== ========= ==========
</TABLE>
The Company has not provided for taxes on undistributed foreign
earnings of approximately $3.9, $26.0 and $6.0 at December 31, 1996, 1995 and
1994, respectively as the Company intends to permanently reinvest these
earnings in the future growth of the business. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculation.
F-21
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
At December 31, 1996, the Company had available under the tax sharing
agreement a federal net operating loss carry forward of approximately $95
million. In addition, at December 31, 1996 the Company has foreign net
operating loss carry forwards in various foreign tax jurisdictions.
In the event that the stock ownership in Marvel by members of the
Mafco affiliated group were to decline below 80% (measured by vote or value),
Marvel and its subsidiaries would cease to be members of the Mafco affiliated
group at such time for tax purposes (a "deconsolidation"). A deconsolidation
would occur, if among other things, the Holding Companies' Trustee were to
foreclose on the Pledged Stock or the Holding Companies' Trustee were to seek
to exercise certain remedies under the indentures pursuant to which the Marvel
Holding Companies issued their respective notes, such as the right to exercise
all voting rights with respect to the Pledged Stock.
In the event of a deconsolidation, net operating losses ("NOLs")
incurred by the Company through the date of such deconsolidation, to the extent
absorbed by the Mafco affiliated group pursuant to the federal income tax laws,
in Mafco's consolidated federal income tax return for the taxable year in which
the deconsolidation occurs (or prior taxable years), would not be available to
offset the taxable income of the Company subsequent to such deconsolidation.
8. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
ACCOUNTS RECEIVABLE, NET:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Accounts receivable .......................................... $ 275.3 $ 314.6
Less: Allowances........................................... (46.2) (77.9)
------------- -------------
$ 229.1 $ 236.7
============= =============
</TABLE>
The allowance as of December 31, 1995 includes provisions recorded by
the Company in the fourth quarter of 1995 in connection with the discontinuance
of certain mass market points of distribution for the trading card business for
which there were no similar provisions of such magnitude in 1996.
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables
generally are due within 30-90 days. At December 31, 1996, the Company did not
have any significant concentrations of credit risk.
INVENTORIES:
<TABLE>
<CAPTION>
1996 1995
------------- --------------
<S> <C> <C>
Finished goods------------------------------------------------ $ 69.4 $ 58.8
Work in process----------------------------------------------- 16.3 22.3
Raw materials------------------------------------------------- 22.0 23.7
Less: Reserve for obsolescence----------------------------- (29.6) (22.4)
------------- --------------
$ 78.1 $ 82.4
============= ==============
</TABLE>
The increase in the reserve for obsolescence is primarily due to the increased
provisions recorded by the Company for the trading card business.
PROPERTY, PLANT AND EQUIPMENT (AT COST), NET:
Depreciation and amortization of property, plant and equipment are
provided on the straight-line basis over the estimated asset lives indicated
below.
F-22
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Land and buildings (20 to 33 years for buildings)------------- $ 35.5 $ 31.5
Machinery and equipment (3 to 10 years)----------------------- 65.1 54.1
Furniture and fixtures (5 to 10 years)------------------------ 6.2 6.0
Leasehold improvements and other (3 to 10 years)-------------- 2.5 2.6
Construction-in-progress-------------------------------------- 1.8 0.2
------------- --------------
111.1 94.4
Less: Accumulated depreciation and amortization-------------- (31.6) (23.1)
------------- --------------
$ 79.5 $ 71.3
============= ==============
</TABLE>
Depreciation and amortization was $19.1, $13.3 and $2.8 in 1996, 1995
and 1994, respectively. This increase primarily resulted from an increased
investment in product tooling to support Toy Biz's expanded product line.
GOODWILL AND OTHER INTANGIBLES, NET:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Goodwill and other intangibles-------------------------------- $ 376.1 $ 645.7
Less: Accumulated amortization------------------------------- (58.5) (41.7)
------------- -------------
$ 317.6 $604.0
============= =============
</TABLE>
Amortization was $16.8, $15.0 and $8.9 in 1996, 1995 and 1994,
respectively.
ACCRUED EXPENSES AND OTHER:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Royalties and incentives-------------------------------------- $ 23.0 $ 21.4
Reserve for returns------------------------------------------- 51.2 59.0
Income taxes payable------------------------------------------ 10.9 19.7
Other--------------------------------------------------------- 104.3 94.7
Less amounts reclassified to liabilities subject to settlement
under reorganization (See Note 3)----------------------------- (14.7) -
------------- ------------
$ 174.7 $ 194.8
============= ============
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company is charged for certain services provided by affiliates of
Mafco on behalf of the Company. These charges did not exceed 1/2 of 1% of the
Company's net revenues for the years ended December 31, 1996, 1995, and 1994.
During the years ended December 31, 1996, 1995 and 1994, Toy Biz
accrued royalties of $1.8, $5.7 and $6.5, respectively, to Mr. Arad, a director
and stockholder of Toy Biz, for toys he invented or designed.
The Company is reimbursed for certain services provided by the Company
on behalf of Toy Biz. These amounts did not exceed 1/2 of 1% of the Company's
net revenues for the years ended December 31, 1996, 1995 and 1994.
During 1994, the Company entered into an apparel license with Classic
Heroes, Inc., an affiliate of Toy Biz controlled by a non-Mafco director of Toy
Biz. Under the contract, the Company recognized $5.0 of income in 1994. In
1995, the Company, at its initiation, terminated the contract and incurred $4.0
of costs, which has been charged to operations.
F-23
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
During 1993, the Company entered into agreements to license certain of
the Company's characters to New World Communications Group Incorporated ("New
World"), then a subsidiary of Mafco, for the production of animated series for
television. These agreements provide for New World to participate in licensing
and other revenues generated from the exhibition of certain animated series.
Results of operations for 1996, 1995 and 1994 includes an expense for this
participation that did not exceed 1/2 of 1% of the Company's net revenues for
the years ended December 31, 1996, 1995 and 1994, respectively. During 1996,
the Company and New World entered into an agreement whereby New World produced
for the Company episodes 1-13 of THE INCREDIBLE HULK animated television series
at the cost of approximately $4 million.
During 1995, the Company extended two unsecured loans totaling $0.5 to
one of its executive officers. The unpaid principal and accrued interest on
such loans are payable February 15, 1999. The unpaid principal balance bears
interest at a rate per annum equal to the interest rate paid by the Company,
from time to time, on outstanding balances under the Amended and Restated
Credit Agreement.
The Company is party to a tax sharing agreement with certain of its
affiliates (see Note 7).
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Consolidated rent expense under operating leases covering production
facilities, office facilities, warehouse facilities and equipment was $7.9,
$7.0 and $4.3 for the years ended December 31, 1996, 1995 and 1994,
respectively. These leases expire through 2005 and are subject to price
escalations for certain costs. Aggregate future minimum rental commitments,
excluding amounts included within restructuring charges, for these leases as of
December 31, 1996 were as follows:
<TABLE>
<CAPTION>
For the Years Ending December 31,
---------------------------------
<S> <C>
1997---------------------------------------------------------- $ 4.9
1998---------------------------------------------------------- 3.9
1999---------------------------------------------------------- 3.2
2000---------------------------------------------------------- 2.5
2001---------------------------------------------------------- 1.3
2002 and thereafter------------------------------------------- 0.7
</TABLE>
SPORTS AND ENTERTAINMENT LICENSING CONTRACTS
Minimum payments under the Company's sports and entertainment license
agreements are $66.0, $55.3, $33.8, $6.1 and $6.7 in 1997, 1998, 1999, 2000 and
2001 respectively and $6.0 for 2002 and thereafter.
LEGAL MATTERS
REORGANIZATION LEGAL PROCEEDINGS
On December 27, 1996, the Debtor Companies filed petitions under
Chapter 11 of the Bankruptcy Code and in connection with such filing have been
parties to various legal proceedings. See Note 3.
The Holding Companies' Trustee has alleged that events of defaults
under each of the Marvel Holding Companies indentures have occurred by reason
of the commencement of the Debtor Companies' cases under the Bankruptcy Code.
The Holding Companies' Trustee has also alleged that the majority ownership and
the anti-injunction provisions of each of the indentures have been violated.
The Company is not a party to any of the indentures governing the notes issued
by the Marvel Holding Companies. In addition, the Company believes the
allegations of the Holding Companies' Trustee are either without merit or will
be resolved in connection with the prosecution of the reorganization cases of
the Marvel Holding Companies. The Holding Companies' Trustee has also
F-24
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
alleged that it may assert a claim based on alleged "tortious interference"
occasioned by the Company's filing of the Plan. The Company believes that any
such allegations are completely without merit.
There are twenty-seven purported class and derivative actions brought
by stockholders of the Company and holders of bonds issued by the Marvel
Holding Companies and one action brought by a purported class of Toy Biz
shareholders presently pending in the Delaware Court of Chancery (collectively,
the "Delaware Actions") that challenge, among other things, the Andrews
Investment.
Twenty-one of the twenty-seven Delaware Actions assert either claims
on behalf of a purported class of all Marvel shareholders or shareholder
derivative claims on behalf of Marvel, or both. The complaints allege, among
other things, that the Andrews Investment represents a breach of defendants'
fiduciary duties because the proposed purchase price per share is unfair and
such purchase would dilute the minority shareholders' interest in Marvel.
Plaintiffs in these actions seek to enjoin the Andrews Investment, to rescind
the Andrews Investment if it is in fact consummated prior to the entry of the
Court's judgment, to recover damages for defendants' alleged conduct and to
recover costs and disbursements in pursuing these actions, including reasonable
attorneys' fees. These actions have been consolidated for all purposes by order
of the Delaware Court of Chancery. A consolidated complaint has not yet been
filed.
Six of the Delaware Actions assert claims on behalf of a purported
class consisting of the holders of bonds issued by the Marvel Holding
Companies. These complaints allege, among other things, that the Andrews
Investment, if consummated, would be a breach of defendants' duty of fair
dealing and good faith owed to the holders of the bonds because the Andrews
Investment would result in the substantial dilution of Marvel's outstanding
stock, which is security for the bonds, and will thus diminish the value of the
bonds. These actions have been separately consolidated by order of the Delaware
Court of Chancery. The consolidated complaint in these six actions do not name
any of the chapter 11 Debtor Companies as defendant. The parties to the
consolidated complaint have agreed to defer the filing of an answer.
All of the foregoing Delaware Actions name varying defendants
consisting in the aggregate of Marvel, Andrews Group, MacAndrews Holdings,
Parent Holdings, Marvel III, Marvel Holdings, Ronald O. Perelman, William C.
Bevins, Donald G. Drapkin, Michael Fuchs, Frank Gifford, E. Gregory
Hookstratten, Morton L. Janklow, Quincy Jones, Stan Lee, Scott C. Marden, Terry
C. Stewart and Kenneth Ziffren.
One of the pending Delaware Actions asserts claims on behalf of a
purported class of all Toy Biz shareholders. Holl v. Toy Biz, Inc., Marvel
Entertainment Group, Inc., Andrews Group, Inc., Ronald O. Perelman, Joseph M.
Ahearn, Avi Arad and Issac Perlmutter, C.A. No. 15359, was filed on November
15, 1996. The complaint alleges, among other things, that defendants Perelman,
Ahearn, Arad and Perlmutter are breaching their fiduciary duties in pursuing
the proposed offers of Marvel and Andrews Group to purchase Toy Biz stock. In
addition, the complaint alleges that defendant Marvel is aiding and abetting
the individual defendants in their unlawful conduct. Damages in an unspecified
amount are sought for the alleged breach of fiduciary duties by defendants.
Plaintiffs also seek to enjoin the consummation of the transaction, to rescind
the transaction in the event it is consummated and to recover costs and
disbursements and reasonable allowances for plaintiff's counsel. This case has
been stayed by stipulation of the parties.
No classes have been certified in any of the Delaware Actions. On
December 27, 1996, Marvel filed a petition for protection under chapter 11 of
the United States Bankruptcy Code. As a result of Marvel's filing, all of the
Delaware Actions with respect to Marvel are automatically stayed pursuant to 11
U.S.C. Section 362. On March 7, 1997, Andrews Group terminated the Stock
Purchase Agreement with Marvel and withdrew the proposal for the Andrews
Investment. On the same date, Andrews Group informed Toy Biz and the two other
principal stockholders of Toy Biz that the transactions contemplated by the
Merger Agreement and the Stock Purchase Agreements with Toy Biz and each of
such principal stockholders, respectively, would not be consummated.
F-25
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Piels v. Marvel Entertainment Group, Inc., Ronald O. Perelman, Andrews
Group, Inc. and MacAndrews & Forbes Holdings Inc., Index No. 96-605702, was
commenced on November 14, 1996. This action, filed in New York Supreme Court,
County of New York, asserts claims on behalf of a purported class of all Marvel
shareholders. Named as defendants are Marvel, Ronald O. Perelman, Andrews Group
and MacAndrews Holdings. The complaint alleges, among other things, that the
defendants have breached their fiduciary duties in connection with the Andrews
Investment. Specifically, plaintiff alleges that Marvel's minority shareholders
are being directly damaged by defendants' actions with respect to the Andrews
Investment. Plaintiff seeks injunctive relief, damages in an unspecified amount
and costs and disbursements, including reasonable attorneys' fees. By orders
dated February 25, 1997, the New York Supreme Court denied plaintiff's motion
for a preliminary injunction and granted defendants' motion to dismiss the
action based on forum non conveniens.
OTHER LEGAL PROCEEDINGS
On March 9, 1995, a complaint purporting to be a class action was
filed against SkyBox, certain of SkyBox's officers and directors and the
Company in the Delaware Court of Chancery, New Castle County, entitled Strougo
v. Lorber, et al., C.A. No. 14107 ("Strougo"). The complaint generally alleged
that SkyBox and certain of its officers and directors breached their fiduciary
duties by agreeing to be acquired by the Company at an allegedly unfair and
inadequate price, failing to consider other potential purchasers in a manner
designed to obtain the highest possible price for SkyBox's stockholders and not
acting in the best interest of stockholders. The complaint also alleged that
the Company aided and abetted the breaches of fiduciary duty committed by the
other defendants named in the complaint. The complaint sought preliminary and
permanent injunctions against consummation of the merger, damages, costs and
experts' fees and expenses. This case was dismissed without prejudice.
On March 16, 1995, a complaint purporting to be a class action was
filed against SkyBox and certain of SkyBox's officers and directors in the
Delaware Court of Chancery, New Castle County, entitled Krim and Gerber v.
SkyBox International Inc., et al., C.A. No. 14127. The complaint generally made
allegations similar to those contained in the Strougo complaint and sought
similar injunctive and other relief. This case was dismissed without prejudice.
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/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. Fleer/SkyBox's principal competitors in the trading
card industry have been separately sued for employing the same or similar
practices. On March 11, 1997, a similar action as Fishman against a competitor
of Fleer/SkyBox entitled Schwartz, et. al. v. Upper Deck, No. 96CV3408 - B
(AJB) (S.D. Cal.), was dismissed with leave to replead. The plaintiffs in that
action filed an amended complaint on March 24, 1997. On April 2, 1997, a
similar action as Fishman against another competitor of Fleer/SkyBox entitled
Price, et. al. v. Pinnacle Brands, No. 3:96-CV-2150-T (N.D. Tex.), was
dismissed with prejudice. In addition, certain of the various sports
organizations and entertainment companies that issue licenses to Fleer/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. Plaintiffs filed their opposition to the motion on or about
December 2, 1996. 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. As set forth above, on
or about December 27, 1996, the Company filed a voluntary petition in the
United States Bankruptcy Court for the District of Delaware. As a result, the
action was automatically stayed pending the outcome of the bankruptcy
proceeding. 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.
F-26
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The Company and two of its officers, William C. Bevins and Terry C.
Stewart, are named as defendants in a purported class action entitled Brian
Barry SEP IRA v. Marvel Entertainment Group, Inc., pending in the United States
District Court for the Southern District of New York. The complaint seeks
unspecified damages on behalf of a proposed class of purchasers of the
Company's Common Stock from April 11, 1994 to December 31, 1994 for alleged
violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934,
as amended, as well as Rule 10b-5 promulgated thereunder. Plaintiff alleges
that the defendants, through their own statements and those of analysts,
artificially inflated the price of Common Stock by creating earnings
expectations which the Company did not meet. Plaintiff also contends that the
defendants failed to timely disclose softness in the publishing and sports
trading card markets which led to the Company's not attaining its purported
earnings target. Plaintiff claims that the individual defendants, because of
their corporate positions, are liable under the securities laws as control
persons of the Company. The defendants moved to dismiss the complaint in its
entirety on February 23, 1996. On April 8, 1997, the District Court granted
the defendant's motion to dismiss without prejudice. As set forth above, on or
about December 27, 1996, the Company filed a voluntary petition in the United
States Bankruptcy Court for the District of Delaware. As a result, any further
action against the Company is automatically stayed pending the outcome of the
bankruptcy proceeding.
Marvel is named as a defendant in two actions which have been
consolidated for all purposes with certain related actions in proceedings now
pending in the Los Angeles County Superior Court. The consolidated cases center
around the ownership of certain rights in the production and distribution of a
live action motion picture based on the "SPIDER-MAN" character owned by Marvel.
Once the automatic stay governing all litigation involving Marvel is lifted by
the Delaware Bankruptcy Court, Marvel intends to assert its own claims to those
rights.
In the lead case, a dispute between 21st Century Film Corporation
("21st Film"), Carolco Pictures, Inc. (`Carolco") and related entities, 21st
Film claims that it still possesses rights under an Agreement with Marvel to
produce and distribute a live action film based on the "SPIDER-MAN" character,
although it had assigned all of its rights to Carolco. Metro Goldwyn Mayer,
Inc. ("MGM") has succeeded to the litigation position of both 21st Film and
Carolco in the respective bankruptcy proceeding of those two companies. In
addition to its purchase of 21st Film and Carolco litigation positions, MGM is
a plaintiff in a separate case that has been deemed related to the lead and
consolidated cases. Marvel has answered the complaint denying MGM's
allegations.
An additional lawsuit, between Carolco and Columbia Tristar Home
Video ("Columbia"), concerns the videocassettes rights to any such film, and a
third lawsuit, between Carolco and Viacom International, Inc. ("Viacom"),
involves television rights. Both Columbia and Viacom claim that, before 21st
Film assigned its rights under its agreement with Marvel to Carolco, 21st Film
had licensed ancillary rights to each company. Each seeks to enforce its
respective rights. Viacom, however, brought a separate suit naming Marvel, and
Marvel has answered that complaint, denying Viacom's allegations.
In its answer and other pleadings, Marvel contends that it is the sole
and exclusive holder of the unencumbered right to produce and distribute a live
action based on the "SPIDER-MAN" character. Marvel contends that all rights to
produce or distribute a "SPIDER-MAN" film under its agreement with Carolco and
21st Film have reverted to Marvel.
Marvel has notified the Court in the consolidated action that Marvel
has filed for bankruptcy protection, and that the bankruptcy court filing stays
all further proceedings in the consolidated lawsuit as to Marvel. Subject to
further proceedings in the bankruptcy court, Marvel has stated that it intends
to defend vigorously the Viacom Lawsuit and the MGM Lawsuit, and to defend
vigorously and assert its exclusive rights to produce and distribute a live
action film based on the "SPIDER-MAN" character.
The Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding, the Company believes
that all of its legal proceedings and claims, individually and in the
aggregate, are not likely to have a material adverse effect on its financial
condition or results of operations. As a result of the Debtors Companies filing
of petitions
F-27
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
pursuant to the Bankruptcy Code, the Company's legal proceedings,
other than the Debtor Companies bankruptcy proceedings, have been automatically
stayed. The Company has obtained a lifting of the automatic stay in the Fishman
case in order to allow the Company to pursue its motion to dismiss.
11. GEOGRAPHIC SEGMENTS
The Company operates in a single business segment. Information
related to the Company's geographic segments for the years ended December 31,
1996, 1995 and 1994 is presented below. Substantially all of the Company's
foreign net revenues were derived from Europe.
Operating profit, as presented below, is total sales less operating
expenses, amortization of goodwill and other intangibles, restructuring
charges, and identifiable miscellaneous income and expense. Unallocated income
and expenses represent interest expense, net interest and investment income,
foreign exchange loss (gain), gain on sale of Toy Biz common stock, equity in
net income of unconsolidated subsidiaries, reorganization item and general
corporate expenses incurred to manage all of the Company's activities.
Identifiable assets, as presented below, are those assets used in
each geographic area. Corporate assets are principally cash, certain property
and equipment and nonoperating assets. Export sales, including those to
affiliates, are not significant.
The majority of the Company's foreign sales and thus the majority of
the risk of foreign currency fluctuations relate to Panini. As a hedge against
foreign currency fluctuation, the financing for the acquisition of Panini in
1994 has been denominated in Panini's functional currency. Additionally, from
time to time, Panini may enter into foreign currency forward exchange
contracts, swaps and options as hedges of various intercompany transactions.
At December 31, 1996 and 1995, outstanding forward exchange contracts were
insignificant. Additionally, the fluctuation in Panini's functional currency
for the years ended December 31, 1996 and 1995 was not significant.
GEOGRAPHIC AREAS:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------------------- -------------- -----------------
Net sales:
<S> <C> <C> <C>
Domestic---------------------------------------------- $ 462.8 $ 579.9 $ 427.5
Foreign----------------------------------------------- 309.9 278.6 97.5
Eliminations------------------------------------------ (27.2) (29.6) (10.2)
------------ ----------- ------------
$ 745.5 $ 828.9 $ 514.8
============ =========== ============
Operating profit:
Domestic---------------------------------------------- ($ 384.4) ($ 28.6) $ 95.7
Foreign----------------------------------------------- 13.1 44.6 19.4
------------ ----------- ------------
(371.3) 16.0 115.1
Unallocated expenses, net ------------------------------------- (59.7) (38.0) 10.8
------------ ----------- ------------
(Loss) income before provision for income taxes---------------- ($ 431.0) ($ 22.0) $ 104.3
============= ============ ============
Identifiable assets:
Domestic---------------------------------------------- $ 455.6 $ 786.7
Foreign----------------------------------------------- 342.3 324.0
Corporate--------------------------------------------- 46.1 115.6
------------ -----------
$ 844.0 $1,226.3
============ ===========
</TABLE>
F-28
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
12. QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter*
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
1996
Net revenues-------------------------------------------------- $ 189.6 $182.2 $209.4 $164.3
Gross profit-------------------------------------------------- 75.7 66.8 66.3 0.3
Net (loss) income--------------------------------------------- (4.4) (11.0) (12.5) (436.5)
Loss per share------------------------------------------- $ (.04) $ (.11) $ (.12) $(4.29)
1995
- ----
Net revenues-------------------------------------------------- $ 157.9 $169.2 $269.0 $232.8
Gross profit-------------------------------------------------- 61.0 52.3 130.2 52.1
Income (loss) income before extraordinary item---------------- 8.2 (14.4) 19.6 (58.5)
Net income (loss)--------------------------------------------- 8.2 (17.7) 19.6 (58.5)
Earnings per share:
Income (loss) before extraordinary item------------------ $ .08 $ (.14) $ .19 $ (.58)
Net income (loss)---------------------------------------- $ .08 $ (.17) $ .19 $ (.58)
</TABLE>
* - Reflects fourth quarter charges, including: a write-down of goodwill and
other intangibles of approximately $278.5 and a valuation allowance of
approximately $32.2 provided to offset deferred tax assets of certain
subsidiaries that were previously recorded. These charges were reflected in
"Amortization of goodwill, intangibles and deferred charges" and "Provision
for income taxes", respectively. These charges were of a non-cash nature.
13. UNUSUAL CHARGES
RESTRUCTURING:
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 terminated approximately 275 employees,
covering editorial, production, distribution and administrative employee groups
and, accordingly, provided for $10.7 of termination benefits, of which $8.8 has
been paid as of December 31, 1996. Additionally, approximately $6.7 of the
restructuring charges relates to facility closure, of which $5.4 has been paid
as of December 31, 1996, and $7.6 of the restructuring charges relates to other
costs, of which $4.7 has been paid as of December 31, 1996. A substantial
portion of the remaining amount of $6.1 as of December 31, 1996, which is
included in accrued expenses and other, is scheduled to be paid in accordance
with the terms of various agreements.
In the fourth quarter of 1996, the Company recorded restructuring
charges of $15.8 related primarily to the publishing and trading card
operations; the closing of the comic book distribution subsidiary and the
closing of a certain confections facility. As part of the restructuring, the
Company has terminated approximately 200 employees, covering editorial,
production, distribution and administrative employee groups and, accordingly,
provided for $6.6 of termination benefits. Additionally, approximately $9.2 of
the restructuring charges relates to write-down of fixed assets and facility
closure.
GOODWILL AND OTHER INTANGIBLES WRITE-DOWN:
Goodwill related to the trading card operations of Fleer and SkyBox
was initially recorded at the time of their respective acquisitions. This
goodwill represented the excess of the purchase price over the valuation of the
net assets acquired in each acquisition. Among other things, the purchase price
was based on the Company's expectations of future performance at the time of
acquisition, considering historical performance and industry trends. These
expectations assumed various growth rates in revenue and sufficient cash flow
from operations to repay acquisition indebtedness.
F-29
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
There has been a significant and continued contraction in the trading
card market since the Fleer and SkyBox acquisitions, related in part to lower
speculative purchases. In addition as a result of the baseball, hockey and
basketball labor situations in 1994 and 1995, fan interest declined which
adversely affected sports trading card sales and increased returns for those
periods. 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. The Company believes that all of these factors have negatively affected
the sports trading card business, causing the Company to experience lower
sales, higher returns and higher inventory obsolescence.
The level of demand for entertainment trading cards is dependent on,
among other factors, the commercial success and media exposure of the Marvel
Characters and third party licensed products, as well as the market conditions
in the comic book specialty stores. In 1994 and 1995, the sale of entertainment
cards based on the Marvel Characters and third party licensed characters
substantially offset the decline in sports trading cards. However, in 1996, the
Company's sales of entertainment trading cards has been adversely affected by
lack of commercial success of properties licensed from third parties as well as
the lower demand for trading cards based on comic book characters. In response,
the Company has undertaken several strategic actions to mitigate the effect of
such contraction However, to date these actions have not been sufficient to
overcome the overall decline in the sales of entertainment cards.
As described above, continuing operating losses in the trading card
and publishing businesses, as well as significant long-term changes in industry
conditions, indicated to the Company that there may be asset impairment. During
the fourth quarter of 1996, the Company evaluated the recoverability of the
carrying value of long-lived assets, including goodwill and other intangibles,
in accordance with its previously stated accounting policies and recorded a
non-cash charge of approximately $252.9 million related to Fleer and SkyBox
that has been classified as amortization of goodwill and other intangibles. The
Company recognized an impairment on a going concern basis related to certain
assets of the trading card business because the future undiscounted cash flows
of the assets were estimated to be insufficient to recover their related
carrying value. The write down was recorded based on the difference between the
carrying value of the asset and the fair value estimated by independent
valuations on a going concern basis. As part of the bankruptcy proceedings and
reorganization efforts involving the Company, certain valuations of the
Company's business units were prepared by investment banking firms. No such
adjustment was required for the assets of the Company's ongoing publishing
activity. Considerable judgment was used to estimate future cash flows and fair
value. Accordingly, actual results could vary significantly from such
estimates. Remaining goodwill associated with the Company's trading cards
operations is approximately $110.0, which will be amortized over 15 years.
The foregoing charge was based upon a going concern assumption. In the
event of a sale of assets, there can be no assurance that actual results or
valuations will not vary significantly from the foregoing.
In addition, the Company has recorded, in the fourth quarter of 1996,
an approximate $19.8 noncash write-down of goodwill and other intangibles
related to the write off of long-lived assets, including goodwill and other
intangibles, related to the closing of Heroes World and the discontinuance of
certain magazines for children. This charge has been classified as amortization
of goodwill and other intangibles.
F-30
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
14. FINANCIAL STATEMENTS OF ENTITIES OPERATING UNDER CHAPTER 11
The combined condensed balance sheet as of December 31, 1996 of the Debtor
Companies is as follows (See Note 3):
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash.................................................. $ 15.2
Accounts receivable, net.............................. 57.5
Inventories, net...................................... 22.1
Income tax receivable................................. 11.8
Prepaid expenses and other............................ 6.6
---------
Total current assets................................. 113.2
Property, plant and equipment, net..................... 9.3
Goodwill and other intangibles, net.................... 193.0
Deferred charges and other............................. 25.2
Investments in and advances to subsidiaries, at cost .. 50.2
---------
Total Assets ........................................ $ 390.9
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 29.2
Accrued expenses and other ........................... 93.2
Short term borrowings................................. 10.0
Liabilities subject to settlement under
reorganization....................................... 14.7
---------
Total current liabilities............................ 147.1
Other long-term liabilities............................ 11.6
Liabilities subject to settlement under
reorganization........................................ 488.5
---------
Total Liabilities.................................... 647.2
---------
Stockholders' deficit:
Additional paid-in capital............................ 94.1
Accumulated deficit................................... (349.7)
Cumulative translation adjustment..................... (0.7)
---------
Total Stockholders' Deficit.......................... (256.3)
---------
Total Liabilities and Stockholders' Deficit ......... $ 390.9
=========
</TABLE>
F-31
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
The combined condensed statement of operations for the year ended December
31, 1996 of the Debtor Companies is as follows:
<TABLE>
<CAPTION>
<S> <C>
Net revenues.......................................................... $ 290.1
Cost of sales......................................................... 236.7
Selling, general & administrative expenses............................ 127.3
Restructuring charges................................................. 15.8
Depreciation and amortization ........................................ 10.7
Amortization of goodwill, intangibles and deferred charges ........... 299.2
Interest expense, net................................................. 39.3
Gain on sale of Toy Biz common stock.................................. 22.0
Equity in net loss of unconsolidated subsidiaries and other, net ..... (23.4)
---------
Loss before reorganization items, provision for income taxes,
minority interest and extraordinary item............................. (440.3)
Reorganization items.................................................. 5.5
---------
Loss before provision for income taxes................................ (445.8)
Provision for income taxes............................................ 18.6
---------
Net loss.............................................................. ($ 464.4)
=========
</TABLE>
F-32
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
(DEBTOR-IN-POSSESSION)
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts(c) Deductions Period
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
DESCRIPTION
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for returns .................. $ 61.6 $ 41.0 $ - ($ 83.9)(a) $ 18.7
Allowance for doubtful accounts and
other allowances.................... 16.3 52.7 - (41.5)(b) 27.5
Reserve for inventory obsolescence........... 22.4 23.5 - (16.3) 29.6
Included in Accrued Expenses & Other:
Reserve for Returns .................... 59.0 129.1 - (136.9)(a) 51.2
--------- --------- --------- --------- -----------
Totals $ 159.3 $ 246.3 $ - $ (278.6) $ 127.0
========= ========= ========= ========= ===========
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for returns................... $ 21.0 $ 101.5 $ 3.8 ($ 64.7)(a) $ 61.6
Allowance for doubtful accounts and
other allowances.................... 2.5 24.1 4.0 (14.3)(b) 16.3
Reserve for inventory obsolescence........... 1.7 33.6 9.8 ( 22.7) 22.4
Included in Accrued Expenses & Other:
Reserve for Returns .................... 47.6 163.7 7.5 ( 159.8)(a) 59.0
--------- --------- --------- --------- -----------
Totals $ 72.8 $ 322.9 $ 25.1 $( 261.5) $ 159.3
========= ========= ========= ========= ===========
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for returns................... $ 15.8 $ 86.4 $ - $ (81.2)(a) $ 21.0
Allowance for doubtful accounts ........ .9 .2 1.9 (.5)(b) 2.5
Reserve for inventory obsolescence........... .7 7.3 .3 (6.6) 1.7
Included in Accrued Expenses & Other:
Reserve for Returns .................... 12.1 97.9 15.6 (78.0)(a) 47.6
--------- --------- --------- --------- -----------
Totals $ 29.5 $ 191.8 $ 17.8 $ (166.3) $ 72.8
========= ========= ========= ========= ===========
</TABLE>
- --------------
(a) Actual returns processed.
(b) Write-off uncollectible accounts.
(c) Represents amounts acquired, including amounts from the consolidation of
Toy Biz commencing in 1995.
F-33
<PAGE>
EXHIBIT 10.08
MARVEL ENTERTAINMENT GROUP, INC.
AMENDED AND RESTATED
STOCK OPTION PLAN
1. PURPOSE
This Amended and Restated Stock Option Plan (the "Plan") is intended to
encourage stock ownership by employees, directors and consultants of Marvel
Entertainment Group, Inc. (the "Company") and Affiliate Corporations (as
defined in Section 2(a)), so that they may acquire or increase their
proprietary interest in the Company, and to encourage such employees, directors
and consultants to remain in the employ or service of the Company and to put
forth maximum efforts for the success of the business of the Company. It is
further intended that options granted pursuant to Section 6 of the Plan shall
constitute "incentive stock options" ("Incentive Stock Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
the regulations issued thereunder (the "Code"), and options granted pursuant to
Section 7 of the Plan shall constitute "nonqualified stock options"
("Nonqualified Stock Options"). Stock appreciation rights ("Rights") related to
stock options granted under the Plan ("Options"), and Rights that are not
related to Options, may be granted under the Plan, as hereinafter set forth.
2. DEFINITIONS
As used in the Plan, the following words and phrases shall have the
meanings indicated:
"Affiliate Corporation" shall mean any corporation, directly or indirectly,
through one or more intermediaries, controlling, controlled by or under common
control with the Company.
"Disability" shall mean an Optionee's inability to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment that can be expected to result in death or that has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months.
"Fair Market Value" per share as of a particular date shall mean (i) the
closing price per share of Common Stock (as defined in Section 5) on a national
securities exchange or on the
<PAGE>
NASDAQ stock market for the last preceding date on which there was a sale of
Common Stock on such exchange, or (ii) if the shares of Common Stock are then
traded on any other over-the-counter market, the average of the closing bid and
asked prices for the shares of Common Stock in such over-the-counter market for
the last preceding date on which there was a sale of Common Stock in such
market or (iii) if the shares of Common Stock are not then listed on a national
securities exchange or traded in an over-the-counter market, such value as the
Committee in its discretion may determine.
"Parent Corporation" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of
granting an Option, each of such corporations (other than the Company) owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
"Subsidiary Corporation" shall mean any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of granting an Option, each of such corporations (other than the last
corporation in an unbroken chain) owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
"Ten Percent Stockholder" shall mean an Optionee who, at the time an
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of its Parent or Subsidiary Corporations.
3. ADMINISTRATION
Unless otherwise determined by the Board of Directors of the Company (the
"Board"), the Plan shall be administered by the Management Compensation and
Stock Option Committee ("Compensation Committee"), which shall consist of two
or more members of the Board who are "outside directors" within the meaning of
section 162(m) of the Code. The Compensation Committee may, in its discretion,
delegate to a subcommittee its duties hereunder, including the grant of
Options and Rights. The full Board shall also have the authority, in its
discretion, to grant Options and
2
<PAGE>
Rights under the Plan and to administer the Plan. For all purposes under the
Plan, any entity which performs the duties described herein, shall be referred
to as the "Committee."
The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically granted
to it under the Plan or necessary or advisable in the administration of the
Plan, including, without limitation, the authority to grant Options and Rights;
to determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine which
Options, if any, shall be accompanied by Rights; to determine the purchase
price of the shares of Common Stock covered by each Option (the "Option
Price"); to determine the persons to whom, and the time or times at which,
Options shall be granted; to determine the number of shares to be covered by
each Option; to interpret the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; to determine the terms and provisions of the
Option Agreements and Award Agreements (which need not be identical) entered
into in connection with Options and Rights granted under the Plan; and to make
all other determinations deemed necessary or advisable for the administration
of the Plan. The Committee may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, and the
Committee or any person to whom it has delegated duties as aforesaid may employ
one or more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan.
No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option or
Right granted hereunder.
4. ELIGIBILITY
Options or Rights, or both, may be granted to key employees (including,
without limitation, officers) and directors (whether or not such directors are
employees) of, or consultants to, the Company or its present or future
Affiliate Corporations, except that Incentive Stock Options shall be granted
only to individuals who, on the date of such grant, are employees of the
Company or a Parent Corporation or a Subsidiary Corporation. In determining
3
<PAGE>
the persons to whom Options and Rights shall be granted and the number of
shares to be covered by each Option and any Rights, the Committee shall take
into account the duties of the respective persons, their present and potential
contributions to the success of the Company and such other factors as the
Committee shall deem relevant in connection with accomplishing the purpose of
the Plan. A person to whom an Option or a Right has been granted hereunder is
sometimes referred to herein as an "Optionee."
An Optionee shall be eligible to receive more than one grant of an Option
or Rights during the term of the Plan, but only on the terms and subject to the
restrictions hereinafter set forth.
5. STOCK
(a) The stock subject to Options and Rights hereunder shall be shares of
the Company's common stock, par value $0.01 per share ("Common Stock"). Such
shares may, in whole or in part, be authorized but unissued shares or shares
that shall have been or that may be reacquired by the Company. The aggregate
number of shares of Common Stock with respect to which Options and Rights may
be granted from time to time under the Stock Plan shall not exceed 16,000,000
shares of Common Stock. The limitation established by the preceding sentence
shall be subject to adjustment as provided in Section 8(h).
(b) The maximum number of shares with respect to which Options or Rights
may be granted to any participant shall be 250,000 shares in each calendar
year. The limitation established by the preceding sentence shall be subject to
adjustment as provided in Section 8(h).
6. INCENTIVE STOCK OPTIONS
Options granted pursuant to this Section 6 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms and
conditions, in addition to the general terms and conditions specified in
Section 8.
Value of Shares. The aggregate Fair Market Value (determined as of the date
the Incentive Stock Option is granted) of the shares of Common Stock with
respect to which Options granted under the Plan and all other option plans of
the Company, any Parent Corporation and any Subsidiary Corporation become
4
<PAGE>
exercisable for the first time by an Optionee during any calendar year shall
not exceed $100,000.
Ten Percent Stockholder. In the case of an Incentive Stock Option granted
to a Ten Percent Stockholder, (i) the Option Price shall not be less than one
hundred ten percent (110%) of the Fair Market Value of a share of Common Stock
on the date of grant of such Incentive Stock Option, and (ii) the exercise
period shall not exceed five (5) years from the date of grant of such Incentive
Stock Option.
7. NONQUALIFIED STOCK OPTIONS
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 8.
8. TERMS AND CONDITIONS OF OPTIONS
Each Option granted pursuant to the Plan shall be evidenced by a written
stock option agreement ("Option Agreement") between the Company and the
Optionee, which shall comply with and be subject to the following terms and
conditions:
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Option Price. Each Option Agreement shall state the Option Price per
share of Common Stock, which, in the case of Incentive Stock Options, shall be
not less than one hundred percent (100%) of the Fair Market Value of a share of
Common Stock on the date of grant of the Option. The Option Price shall be
subject to adjustment as provided in Section 8(h). The date on which the
Committee adopts a resolution expressly granting an Option shall be considered
the day on which such Option is granted.
(c) Medium and Time of Payment. The Option Price shall be paid in full, at
the time of exercise, in cash or in shares of Common Stock having a Fair Market
Value equal to the Option Price or in a combination of cash and such shares,
and may be effected in whole or in part with monies borrowed from the Company
pursuant to repayment terms and conditions as shall be determined from time to
time by the Committee, in its discretion, separately
5
<PAGE>
with respect to each exercise of Options and each Optionee; provided, however,
that each such method and time for payment and each such borrowing and terms
and conditions of security, if any, and repayment shall be permitted by and be
in compliance with applicable law.
(d) Term and Exercise of Options. Options shall be exercisable over the
exercise period as and at the times and upon the conditions that the Committee
may determine, as reflected in the Option Agreement; provided, however, that
the Committee shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in its sole
discretion, deems appropriate. The exercise period shall be determined by the
Committee; provided, however, that in the case of an Incentive Stock Option,
such exercise period shall not exceed ten (10) years from the date of grant of
such Incentive Stock Option. The exercise period shall be subject to earlier
termination as provided in Section 8(e) and 8(f). An Option may be exercised,
as to any or all full shares of Common Stock as to which the Option has become
exercisable, by giving written notice of such exercise to the Compensation
Committee; provided, however, that an Option may not be exercised at any time
as to fewer than 100 shares (or such number as to which the Option is then
exercisable if such number of shares is less than 100).
(e) Termination of Employment or Service. Except as provided in
this Section 8(e) and in Section 8(f), an Option may not be exercised unless
the Optionee is then in the employ of, or a director of, or a consultant to (1)
the Company, (2) an Affiliate Corporation or (3) a corporation issuing or
assuming the Option in a transaction to which Section 424(a) of the Code
applies or a Parent Corporation or Subsidiary Corporation of the
corporation described in clauses (1), (2) or (3) above in this Section 8(e)
(any such corporation, an "Employer") and unless the Optionee has remained
continuously so employed or in such service since the date of grant of the
Option. Unless otherwise determined by the Committee, in the event that the
employment or service of an Optionee shall terminate (other than by reason of
death, Disability or retirement), then all Options of such Optionee that are
not exercisable as of the date of such termination shall be forfeited, and all
Options that are exercisable as of the date of such termination may, unless
earlier terminated in accordance with their terms, be exercised by no later
than 5 p.m.
6
<PAGE>
of the last day of the three-month period commencing on the date of such
termination. Any Options that have not been exercised by the end of such
three-month period shall be forfeited. Nothing in the Plan or in any Option or
Right granted pursuant hereto shall confer upon an individual any right to
continue in the employ of, or as a director of, or a consultant to the Employer
or interfere in any way with the right of the Employer to terminate such
employment or service at any time.
(f) Death, Disability or Retirement of Optionee. Unless otherwise
determined by the Committee, if an Optionee shall die while employed by, or a
director of, or a consultant to the Employer, or within three (3) months after
the termination of such Optionee's employment or service, or if the Optionee's
employment or service shall terminate by reason of Disability or retirement,
then all Options of such Optionee that are not exercisable as of the date of
such death, disability or retirement shall be forfeited, and all Options that
are exercisable as of the date of such death, disability or retirement may,
unless earlier terminated in accordance with their terms, be exercised by no
later than 5 p.m. of the last day of the one-year period commencing on the date
of such death, disability or retirement. Any Options that have not been
exercised by the end of such one-year period shall be forfeited.
(g) Nontransferability of Options. Unless otherwise determined by the
Committee, the Options shall not be transferable otherwise than by will or by
the laws of descent and distribution, and Options may be exercised, during the
lifetime of the Optionee, only by the Optionee or by the guardian or legal
representative of the Optionee.
7
<PAGE>
(h) Effect of Certain Changes.
(1) If there is any change in the number of shares of Common Stock as a
result of the declaration of stock dividends, recapitalization resulting
in stock splits or combinations or exchanges of such shares, the number of
shares of Common Stock available for Options and Rights, the number of such
shares covered by outstanding Options and Rights, and the price per share
of such Options or the applicable market value of Rights shall be
proportionately adjusted by the Compensation Committee to reflect any
increase or decrease in the number of issued shares of Common Stock;
provided, however, that any fractional shares resulting from such
adjustment shall be eliminated.
(2) In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from any
such change shall be deemed to be the Common Stock within the meaning of
the Plan.
(3) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the
Compensation Committee, whose determination shall be final, binding and
conclusive, provided that each Incentive Stock Option granted pursuant to
the Plan shall not be adjusted in a manner that causes such option to fail
to continue to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(i) Rights as a Stockholder. An Optionee or a transferee of an Option shall
have no rights as a stockholder with respect to any shares covered by the
Option until the date of the issuance of a stock certificate to him or her for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distribution
of other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 8(h).
(j) Other Provisions. The Option Agreements authorized
8
<PAGE>
under the Plan shall contain such other provisions, including, without
limitation, (i) the granting of Rights, (ii) the imposition of restrictions
upon the exercise of an Option and (iii) in the case of an Incentive Stock
Option, the inclusion of any condition not inconsistent with such Option's
qualifying as an Incentive Stock Option, as the Committee shall deem advisable.
9. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Rights may be granted either alone ("Free Standing
Rights") or in conjunction with all or part of any Option granted under the
Plan ("Related Rights"). In the case of a Nonqualified Stock Option, Related
Rights may be granted either at or after the time of the grant of such Option.
In the case of an Incentive Stock Option, Related Rights may be granted only at
the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted with respect to any
Option shall terminate and no longer be exercisable upon the termination or
exercise of the related Option, except that, unless otherwise determined by the
Committee, a Related Right granted with respect to less than the full number of
shares covered by a related Option shall only be reduced if and to the extent
that the number of shares covered by the exercise or termination of the related
Option exceeds the number of shares not covered by the Right immediately prior
to such termination or exercise.
A Related Right may be exercised in accordance with paragraph (b) of this
Section 9, by surrendering the applicable portion of the related Option. Upon
such exercise and surrender, the Optionee shall be entitled to receive an
amount determined in the manner prescribed in paragraph (b) of this Section 9.
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the Related Rights have been exercised.
(b) Terms and Conditions. Rights shall be subject to such terms and
conditions not inconsistent with the provisions of the Plan as shall be
determined from time to time by the Committee, including the following:
(1) Related Rights shall be exercisable only at such
9
<PAGE>
time or times and to the extent that the Options to which the Related
Rights relate shall be exercisable in accordance with the provisions of
Sections 6, 7 and 8 and this Section 9 of the Plan.
(2) Upon the exercise of a Related Right, an Optionee shall be entitled
to receive up to, but not more than, an amount in cash or shares of Common
Stock equal in value to the excess of the Fair Market Value of one share of
Common Stock over the Option Price per share specified in the related
Option multiplied by the number of shares in respect of which the Related
Right shall have been exercised, with the Committee having the right to
determine the form of payment.
(3) Unless otherwise determined by the Committee, Related Rights shall
be transferable only when and to the extent (and subject to the same
restrictions) that the underlying Option would be transferable under
Section 8(g) of the Plan.
(4) Upon an exercise of a Related Right, the Option or part thereof to
which the Related Right relates shall terminate but the number of shares
available for issuance set forth in Section 5 of the Plan shall be reduced
only by the number of shares actually issued upon the exercise of such
Related Right.
(5) A Related Right granted in connection with an Incentive Stock
Option may be exercised only if and when the market price of the Common
Stock subject to the Incentive Stock Option exceeds the exercise price of
such Option.
(6) Each Free Standing Right granted pursuant to the Plan shall be
evidenced by a written award agreement ("Award Agreement") between the
Company and the recipient. Free Standing Rights shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant thereof.
(7) The term of each Free Standing Right shall be fixed by the
Committee.
(8) Upon the exercise of a Free Standing Right, a
10
<PAGE>
recipient shall be entitled to receive up to, but not more than, an amount
in cash or shares of Common Stock equal in value to the excess of the Fair
Market Value of one share of Common Stock over the price per share
specified in the Award Agreement multiplied by the number of shares in
respect of which such Right is being exercised, with the Committee having
the right to determine the form of payment.
(9) Unless otherwise determined by the Committee, Free Standing Rights
shall not be transferable otherwise than by will or by the laws of descent
and distribution, and may be exercised, during the lifetime of the
recipient, only by the recipient or by the guardian or legal representative
of the recipient.
(10) In the event of the termination of employment or service of a
recipient of a Free Standing Right or the death, disability or retirement
of such recipient of a Free Standing Right, such Free Standing Right shall
be exercisable to the same extent that an Option would have been
exercisable in accordance with the provisions of Sections 8(e) and (f), in
the event of the termination of employment or service or the death,
disability or retirement of the Optionee.
10. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES
If the Committee shall so require as a condition of exercise, each Optionee
shall agree that
(a) no later than the date of exercise of any Option or Right granted
hereunder, the Optionee will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or
local taxes of any kind required by law to be withheld upon the exercise
of such Option or Right; and
(b) the Company shall have the right, to the extent permitted or
required by law, to deduct from any payment of any kind otherwise due to
the Optionee, federal, state and local taxes of any kind required by law to
be withheld upon the exercise of such Option or Right.
11
<PAGE>
11. TERM OF PLAN
Options and Rights may be granted pursuant to the Plan from time to time
within a period of ten (10) years from the date the Plan is adopted by the
Board.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Board at any time and from time to time may suspend, terminate, modify
or amend the Plan and the Compensation Committee shall have concurrent power
with the Board to increase the number of shares of Common Stock subject to
Options and Rights hereunder pursuant to Section 5(a) and the maximum number of
shares with respect to which Options and Rights may be granted to any
participant in each calendar year pursuant to Section 5(b). Except as provided
in Section 8, no suspension, termination, modification or amendment of the
Plan may adversely affect any Option or Right previously granted, unless the
written consent of the Optionee is obtained.
13. EFFECT OF HEADINGS
The section and subsection headings contained herein are for convenience
only and shall not affect the construction of the Plan.
14. COMPLIANCE WITH CERTAIN LAWS
This Plan is intended to comply with the requirements of Section 162(m) of
the Code and shall be interpreted accordingly.
12
<PAGE>
EXHIBIT 10.19
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of January 26, 1996, between
Marvel Entertainment Group, Inc., a Delaware corporation (the "Company") and
Scott C. Marden (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:
1. 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 Executive Vice President of the Company and to
serve as President of a unit to be formed within the Company ("Newco") which
will include those areas of the Company's licensing business which involve
electronic products (for example, video games, compact discs and on-line
services) and publishing in an electronic form and a newly formed subsidiary
(to be known as "Marvel Software") to conduct the Company's electronic
software business. The Executive shall report directly to the Company's
President and/or Chief Executive Officer and shall be the most senior officer
responsible for the Company's electronic software business other than the
Company's Chief Executive Officer and/or President. The Executive shall be
elected to serve as a member of the Company's Board of Directors and a member
of the Board of Directors of Marvel Software (and any of its subsidiaries).
The Executive shall also serve 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 Board of Directors or any
<PAGE>
officer of the Company senior to the Executive. The Executive shall have
duties commensurate with those of a senior executive and shall have an
appropriate office with secretarial and other support services suitable to his
position. The Executive shall be permitted to serve as a member of the board
of unaffiliated companies with the prior consent of the Company's President,
Chief Executive Officer or Board of Directors, which consent shall not be
unreasonably withheld. From the date hereof until the commencement of the Term
set forth in Section 2.1, Executive shall serve as a consultant to the
Company. The Executive shall receive no additional compensation for such
services.
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 (with such other duties as may be mutually agreed), 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 principal executive
office of the Company in New York City, subject to reasonable travel
requirements on behalf of the Company.
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2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment
under this Agreement (the "Term") shall commence on February 19, 1996 and
shall end on February 18, 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
February 1, 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.
Said notice shall be deemed given on February 18, 1999, if not given prior to
such date, unless the parties have otherwise agreed to a new agreement.
2.3 Special Curtailment. The Term shall end earlier
than the original February 18, 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.
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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 $750,000 through February 18, 1997, $800,000 through
February 18, 1998 and $850,000 through the remainder of the Term, 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 Bonus. In addition to the amounts to be paid to
the Executive pursuant to Section 3.1, the Executive shall receive a bonus of
up to 100% of Base Salary in each year upon Newco achieving the operating plan
established for it in consultation with the Executive for the preceding year.
Such bonus shall be payable during the Term in respect of each calendar year.
The Company shall use its best efforts to pay such bonus within 90 days after
the end of each such year but in no event shall such bonus be paid more than
120 days after the end of such calendar year. Notwithstanding the foregoing,
the bonus payable shall not be less than $500,000 in respect of the portion of
1996 in which the Executive served and not less than $150,000 in respect of
each of the following two calendar years. No bonus shall be payable for the
portion of the calendar year 1999 unless the stated Term of this Agreement is
extended.
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
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during any period may be fixed in advance by the Chairman or Vice Chairman of
the Board of Directors, the President of the Company, or the Board of
Directors. The Executive shall be entitled to travel first class and stay at
first class hotels while travelling on behalf of the Company.
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 employees or
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 officers of the Company generally.
3.6 Marvel Software Equity. The Executive shall
receive a 1.5% equity interest in the Company's newly established subsidiary
to be known as Marvel Software (such interest referred to herein as the
"Software Equity"). It is the intent of the parties that the Software Equity
should at all times represent one and one-half percent of the aggregate
profits and distributions received by the Company and the Executive subject to
the following: The Software Equity shall receive one and one-half percent
(1.5%) of such profits and distributions after return to the Company of the
carrying cost of its investment (whether in the form of cash, property or
other rights) in Marvel Software (the "Software Carrying Cost"). Marvel shall
have the right to royalty payments (at a rate of 10%) for any property rights
licensed to Marvel Software. Upon disposition or liquidation of Marvel
Software, the Software Equity shall be entitled to receive one and one-half
percent (1.5%) of the aggregate value, after return to the Company of said
investment and any accrued and unpaid Software
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Carrying Cost, received by the Company and the Executive. By way of
illustration only, if the Software Equity consists of Common Stock, the
Company could own the other 98.5% of the Common Stock, and its investment
could take the form of either (a) preferred stock bearing a dividend equal to
the Software Carrying Cost and having a liquidation preference equal to the
amounts invested by the Company or (b) debt in a face amount equal to the
amounts invested by the Company and bearing interest at a rate equal to the
Software Carrying Cost. However, the parties agree to consider any other
capital structure which accomplishes the general principles set forth above.
For purposes of this Agreement, the Software Carrying Cost shall equal the
daily average rate of all outstanding indebtedness of the Company.
The Software Equity shall be issued as soon as practicable
after execution of this Agreement. Simultaneously therewith, the parties shall
enter into a Stockholders' Agreement regarding Marvel Software which shall
provide the Executive with the following:
(i) Anti-dilution rights relative to the combined
interest of the Executive and the Company (net of the Company's investment and
accrued and unpaid Software Carrying Cost);
(ii) Piggyback registration rights;
(iii) Tag along sale rights;
(iv) the ability to exercise the Put and Call
described below in the event of a Change of Control (as defined below) of the
Company. In the event of a sale of Marvel Software to other than an affiliate
of the Company, the Software Equity shall receive one and one-half percent
(1.5%) of the total consideration received by the Executive and the Company
after deduction of the Company's investment and accrued and unpaid Software
Carrying Cost. In the event of a sale of Marvel Software to an affiliate of
the Company, the Software Equity shall receive the Established Value (as
defined below). Upon termination of
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the Term for any reason, the Executive shall have the right to require the
Company to purchase the Executive's Software Equity (the "Put") and the
Company shall have the right to require the Executive to sell the Executive's
Software Equity to the Company (the "Call"). In the event of a public offering
of Marvel Software equity, the Company shall have the right to Call the
Software Equity at a purchase price equal to the public offering price or the
Established Value, (as defined below) at the option of the Software Equity.
Any purchase or sale pursuant to the Put or Call shall be at the Established
Value thereof. "Established Value" shall be the applicable percentage of the
value of Marvel Software, such value to be determined by an appraisal
performed by an appraiser mutually agreed to by the Executive and the Company.
If the Executive and the Company fail to agree on an appraiser, then the
Executive and the Company each shall select an appraiser and such two
appraisers shall select a third appraiser. The appraisal which results in
neither the highest nor lowest value shall be deemed to be the Established
Value. The parties agree that as soon as practicable after the commencement of
the Term, they shall execute an agreement mutually satisfactory to both
parties governing the terms and conditions of the Software Equity consistent
with the general principles set forth herein.
3.7. Stock Options. The Company shall grant to the Executive
options to purchase 250,000 shares of the Company's common stock at or about
the first day of each year of the Term (the first grant to be on the date
hereof at an exercise price of $12.50). The options will have an exercise
price equal to the stock price on the date of grant. The options will vest
immediately in the case of the first grant and in the case of the grants made
in the second and third years will vest 1/3 on each of the first, second and
third anniversaries of grant. In the event that the Executive terminates this
Agreement pursuant to Section 4.4 or the Executive shall die during the Term
or the Term is terminated pursuant to Section 4.2 all stock options granted
shall immediately vest. The Company will permit "cashless exercise" of vested
options and use reasonable efforts to afford the Executive (or his permitted
succes-
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sor) the ability to utilize such "cashless exercise." The Company shall take
all actions necessary to assure that sufficient shares of the Company's common
stock are authorized and reserved for issuance upon exercise of the stock
options granted hereunder.
3.8 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 and
the 60% minimum bonus guaranteed pursuant to Section 3.2, in the manner
specified in Sections 3.1 and 3.2, as applicable, 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 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 continued payments in an amount equal to 60% of the Base
Salary and the 60% minimum
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bonus guaranteed pursuant to Section 3.2, in the manner specified in Sections
3.1 and 3.2 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. 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. Notwithstanding anything
to the contrary in the Company's stock option plan, Executive shall be
permitted to exercise all vested options for twelve months after a termination
for disability under this Section 4.2.
4.3 Cause. In the event of gross neglect (as described in
reasonable detail in any notice of termination but without a right to cure) by
the Executive of the Executive's duties hereunder, conviction of the Executive
of any felony, or conviction of the Executive of any lesser crime or offense
involving the property of the Company or any of its subsidiaries or
affiliates, or willful misconduct by the Executive in connection with the
performance of any material portion of the Executive's duties hereunder, or
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 to the
Executive terminate the Term and, upon such termination, this Agreement shall
terminate 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.
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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 both (i) payments of Base
Salary, in the manner and amount specified in Section 3.1 and any guaranteed
bonus provided for in Section 3.2 and (ii) fringe benefits and additional
benefits in the manner and amounts specified in Sections 3.5 and 3.8 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"). 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.
In the event that a Change in Control has occurred
and within 120 days thereafter either (x) the Company terminates the Term or
this Agreement other than pursuant to the provisions of Section 4.1, 4.2 or
4.3 or (y) the Executive terminates this Agreement pursuant to Section 4.4,
the Company shall pay the Executive, in addition to any other amounts owing
hereunder, an amount equal to (i) 750,000 less the number of options granted
to the Executive (whether or not vested) times (ii) the difference between the
closing price for the Company's common stock on the date of termination (or if
such day is not a trading day then on the immediately preceding trading day)
and the option exercise price of the stock options granted to the Executive
upon the commencement of the Term.
For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to occur (A) if during the Term,
Ronald O. Perelman, individually, or his estate, heirs or personal
representatives or any trust created for the benefit of his wife or children,
or any corporation or other entity which such persons control (collectively,
"Permitted Holders"), directly or indirectly, cease to maintain "beneficial
ownership" (as defined in
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Rule 13d-3 ("Rule 13d-3") of the Securities Exchange Act of 1934, as amended),
individually or in the aggregate, of securities of the Company representing
twenty percent (20%) or more of the combined ordinary voting power of the
Company's then outstanding securities and any "person" (as defined in Rule
13d-3) or "persons" acting in concert, other than one or more Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rule 13d-3),
directly or indirectly, individually or in the aggregate, of securities of the
Company representing twenty percent (20%) or more of the combined ordinary
voting power of the Company's then outstanding securities or (B) upon the
merger or other business combination of the Company with or into another
corporation, partnership, or other entity in which the Company does not
survive or survives as a subsidiary of another entity, and in such case
immediately after such event Permitted Holders, directly or indirectly, cease
to maintain "beneficial ownership" (as defined in Rule 13d-3) individually or
in the aggregate, of securities of the entity which survives the merger or
other business combination representing twenty percent (20%) or more of the
combined ordinary voting power of such entity's then outstanding securities
and any "person" (as defined in Rule 13d-3) or "persons" acting in concert,
other than one or more Permitted Holders, is or becomes the "beneficial owner"
(as defined in Rule 13d-3), directly or indirectly, individually or in the
aggregate, of securities of such entity representing twenty percent (20%) or
more of the combined ordinary voting power of such entity's then outstanding
securities or (C) upon the sale of substantially all of the assets of the
Company to a non-affiliate of the Company.
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
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upon presentation of expense statements or other supporting information
evidencing the incurrence of such expenses.
4.6 Additional Payments. To the extent that the Company
agrees to provide to any other senior executive of the Company upon death or
disability continued payments of Base Salary in excess of the 60% set forth in
Section 4.1 or 4.2, this Agreement shall be deemed to be amended to provide to
the Executive such greater benefit. In any dispute concerning the provisions
of this paragraph, an affidavit from the Chief Executive Officer or Chief
Financial Officer of the Company shall be deemed for all purposes to be
conclusive evidence of whether any other senior executive contract contains
any such provisions. Executive expressly waives any right to obtain copies of
contracts of other executives or employees of the Company, including in the
event of litigation concerning this Agreement.
4.7 Late Payments. In the event of any dispute during which
the Company withholds payment which is ultimately determined to be due
hereunder, any and all amounts not paid when due hereunder shall bear interest
through the date of payment at a rate equal to one hundred and twenty percent
(120%) of the average rate paid (or payable) by the Company for borrowings
under its revolving credit facility during the period of the dispute.
5. Protection of Confidential Information;
Non-Competition.
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for
future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know
how", trade secrets, customer lists, pricing policies, operational methods,
technical
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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 prohibition shall not apply, however, to the
extent that any information has become publicly available other than as a
result of a disclosure by the Executive in violation of this Agreement or as
required by law). 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,
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agent, employee, trustee, consultant, or in any other relationship or capacity
provided, however, that nothing contained in this Section 5.2 shall be deemed
to prohibit the Executive from acquiring, solely as an investment, up to five
percent (5%) of the outstanding shares of capital stock of any public
corporation.
5.3 If the Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the
Company shall have the following rights and remedies:
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.
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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 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.
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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
one year after the termination of the Executive's employment by the Company,
it is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert
any rights to any Invention as having been made or acquired by the Executive
prior to the date of this Agreement, except for Inventions, if any, disclosed
to the Company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in
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connection with and during the Term (the "Intellectual Property"), provided
that the Intellectual Property 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, 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:
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Marvel Entertainment Group, Inc.
387 Park Avenue South
New York, New York 10016
Attention: Paul Shapiro
Executive Vice President and
General Counsel
If to the Executive, to:
Scott C. Marden
440 West End Avenue
New York, New York 10024
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
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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 the breach of any term or
covenant contained in this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such breach, or a waiver of the breach of any
other term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate"
shall mean and include any corporation or other business entity directly or
indirectly controlling, controlled by or under common control with the
corporation or other business entity in question.
12. Additional Representations.
12.1 The Company represents and warrants that it is duly
authorized to enter this Agreement and perform its obligations hereunder.
19
<PAGE>
12.2 The Executive represents and warrants that the
execution, delivery and performance of this Agreement by the Executive will
not violate the terms of any other agreement to which the Executive is a
party.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By:/s/ Paul E. Shapiro
-------------------------------
/s/ Scott C. Marden
----------------------------------
Scott C. Marden
20
<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, all on the following basis. The Company shall
pay, upon presentation of an expense statement, all reasonable expenses
associated with the operation of such automobile and the rental of such garage
space in the same manner as is, from time to time, in effect with respect to
executive officers of the Company generally, including, without limitation,
all reasonable maintenance and insurance expenses. The automobile furnished by
the Company shall be a late model top-of-the-line Range Rover or BMW 7 Series
or like vehicle to be reasonably selected by the Executive. Upon the
expiration of the Term, the Executive promptly shall return the automobile to
the Company.
3. Insurance. The Company agrees to provide the Executive
with additional term life insurance coverage with a face amount of twice the
then current Base Salary, 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. The policy
shall be the property of the Executive.
4. Tax Advisor. The Executive shall be reimbursed by the
Company, upon presentation of an expense statement, for the reasonable fees
and disbursements of a personal tax advisor to be selected by the Executive.
21
<PAGE>
5. 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.
6. Estate Planning. The Executive shall be reimbursed by the
Company, upon presentation of an expense statement, for the reasonable fees
and disbursements of an estate planning advisor to be selected by the
Executive.
22
<PAGE>
EXHIBIT 10.35
STANDSTILL AGREEMENT AND AMENDMENT
STANDSTILL AGREEMENT AND AMENDMENT, dated as of December 20, 1996 (this
"Agreement"), among the signatories hereto as parties to any one or more of the
Covered Documents (as defined below).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Marvel Entertainment Group, Inc. ("Marvel") and certain of
its Subsidiaries have filed or intend to file voluntary petitions for relief
under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code")
commencing a jointly administered case (the "Bankruptcy Case") under the
Bankruptcy Code;
WHEREAS, certain Subsidiaries of Marvel have not filed petitions for
relief under the Bankruptcy Code;
WHEREAS, the parties hereto wish to enter into a standstill agreement
with respect to such non-filing Subsidiaries and to amend certain provisions of
the Covered Documents;
NOW, THEREFORE, in consideration of the foregoing and the covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows.
1. Definitions. The following terms shall have the following meanings
when used herein:
"Agent": The Chase Manhattan Bank (formerly known as Chemical
Bank), as agent or administrative agent (as the case may be) under any
Covered Document.
"Bank": any bank, fund, other financial institution or other
Person (other than Marvel, its subsidiaries and its affiliates) that
is a party to, or holds a participating interest in, any Covered
Document.
"Covered Documents": the collective reference to (i) the Amended
and Restated Credit and Guarantee Agreement, dated as of August 30,
1994 (as heretofore
<PAGE>
2
and hereafter amended, supplemented or otherwise modified, the "Fleer
Agreement"), among Marvel, Fleer Corp., the financial institutions
parties thereto, the co-agents parties thereto, and the Agent, (ii)
the Credit and Guarantee Agreement, dated as of April 24, 1995 (as
heretofore and hereafter amended, supplemented or otherwise modified,
the "SkyBox Agreement"), among Marvel, Fleer Corp., the financial
institutions parties thereto, the co-agents parties thereto and the
Agent, (iii) the Term Loan and Guarantee Agreement, dated as of August
30, 1994 (as heretofore and hereafter amended, supplemented or
otherwise modified, the "Local Loan Agreement"), among Panini, S.p.A.
(as successor to Marvel Comics Italia, S.r.l.), Marvel and Istituto
Bancario San Paolo di Torino, S.p.A., (iv) the Participation
Agreement, dated as of August 30, 1994 (as heretofore and hereafter
amended, supplemented or otherwise modified, the "Participation
Agreement"), among Istituto Bancario San Paolo di Torino, S.p.A., the
Agent and the banks and other financial institutions parties thereto,
(v) the Line of Credit, dated as of March 27, 1996 (as heretofore and
hereafter amended, supplemented or otherwise modified, the "Line of
Credit"), among Fleer Corp., the financial institutions parties
thereto and the Agent, (vi) each letter of credit issued for the
account of Marvel or any of its Subsidiaries by a bank or other
financial institution which is a party to the SkyBox Agreement or the
Fleer Agreement, (vii) each interest rate agreement between Marvel or
any of its Subsidiaries and a bank or other financial institution
which is a party to the SkyBox Agreement or the Fleer Agreement,
(viii) each other Credit Document (as defined in any of the foregoing)
and (ix) each other promissory note, security agreement, pledge
agreement, guarantee, mortgage or other document, instrument or
agreement delivered in connection with, or otherwise relating to, any
of the foregoing.
"Covered Obligations": all obligations and liabilities of Marvel
and its Subsidiaries to the Agent or any Bank, whether or not arising
under any Covered Document.
<PAGE>
3
"Final Order Date": the first date upon which (i) an order of the
United States Bankruptcy Court for the District of Delaware is entered
confirming the Plan of Reorganization of Marvel and certain of its
subsidiaries prior to June 30, 1997, (ii) such order shall not have
been stayed, reversed, vacated, rescinded, amended or otherwise
modified in any respect and (iii) such order shall not be the subject
of an appeal, motion for rehearing or reconsideration, petition for
certiorari or other like motion and the time for filing any such
motion shall have expired.
"Person": an individual, a partnership, a corporation, a business
trust, a joint stock company, a trust, an unincorporated association,
a joint venture, a governmental authority or any other entity of
whatever nature.
"Plan of Reorganization": a plan of reorganization for Marvel and
its Subsidiaries that are the subject of the Bankruptcy Case,
substantially similar to the form provided to the parties hereto prior
to the date hereof in connection with the solicitation of their
approval of such plan.
"Specified Parties": the collective reference to the Required
Banks under (and as defined in) the Fleer Agreement and the SkyBox
Agreement, the Majority Participants under (and as defined in) the
Participation Agreement and the Banks holding the majority of the
commitments under (and as defined in) the Line of Credit.
"Standstill Period": the period commencing with the filing of the
petition for bankruptcy relief of Marvel and ending on the Termination
Date.
"Subsidiary": of any Person, a corporation or other entity of
which shares of stock or other ownership interests having ordinary
voting power (other than stock or other ownership interests having
such power only by reason of the happening of a contingency) to elect
a majority of the directors of such corporation, or other Persons
performing similar
<PAGE>
4
functions for such entity, are owned, directly or indirectly, by such
Person; unless otherwise qualified, all references to a "Subsidiary"
or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of Marvel.
"Termination Date": the earliest of (a) June 30, 1997, (b) the
date upon which Marvel or any of its Subsidiaries shall commence any
lawsuit or other legal action (other than any such lawsuit or other
action which is reasonably commenced by Marvel or a Subsidiary to
enforce its rights hereunder) against the Agent or any of the Banks or
with respect to any of the Covered Obligations, (c) the date upon
which any payment default occurs under any of the Covered Documents
and (d) the Final Order Date.
2. Amendments to Covered Documents. (a) Notwithstanding anything to
the contrary contained in any of the Covered Documents, each Bank hereby agrees
to permit its loans under the Covered Documents to be outstanding (to the
extent applicable) as Eurodollar Loans or Eurocurrency Loans (as each such term
is defined in the applicable Covered Documents) during the Standstill Period;
provided that, in the event that the Interest Period (as defined in the
applicable Covered Document) for any such Eurodollar Loan or Eurocurrency Loan
(as the case may be) is longer than one month, such Interest Period shall have
a scheduled expiry on or prior to June 30, 1997.
(b) Notwithstanding anything to the contrary contained in any of the
Covered Documents, each Bank hereby agrees that during the Standstill Period
its lending commitment under any Covered Document shall not automatically
terminate or be accelerated upon the commencement of the Bankruptcy Case, but
rather shall be suspended and shall be reinstated upon confirmation of, and in
accordance with the terms of, the Plan of Reorganization.
3. Standstill. Each of the Banks and the Agent hereby agrees that it
shall not take any action, by lawsuit, foreclosure, setoff or otherwise during
the Standstill Period to accelerate, terminate or collect any of the Covered
Obligations or to realize upon any of the collateral security or guarantee
obligations held with respect to any of the Covered Obligations
<PAGE>
5
against any Subsidiary of Marvel that is not the subject of the Bankruptcy
Case.
4. Authorization to Agent. Each of the Banks hereby authorizes and
instructs the Agent to execute and deliver the Non-Disturbance Agreement,
substantially in the form of Exhibit A hereto, upon the consummation of the
Plan of Reorganization.
5. Effective Date; Conditions Precedent. (a) The standstill agreement
contained in paragraph 3 shall become effective as of the date upon which the
Bankruptcy Case is commenced provided that the Agent shall have received
counterparts of this Agreement, duly executed by the requisite Banks under the
Covered Documents.
(b) Each of the other provisions of this Agreement shall become
effective as of the date first written above upon:
(i) receipt by the Agent of counterparts of this Agreement, duly
executed by the requisite Banks under the Covered Documents; and
(ii) to the extent that this Agreement has been executed and delivered
by the Specified Parties, receipt by each Bank who executes and delivers
this Agreement on or prior to December 20, 1996 of a fee in the amount
equal to 25 b.p. on (i) the Revolving Credit Commitment of such Bank under
(and as defined in) the Fleer Agreement, (ii) the Loans of such Bank under
(and as defined in) the SkyBox Agreement, (iii) the participating interests
of such Bank in the Term Loans under (and as defined in) the Local Loan
Agreement pursuant to the Participation Agreement (including, without
limitation, the interest retained by Istituto Bancario San Paolo di Torino,
S.p.A. under the Local Loan Agreement) and (iv) the Loans of such Bank
under (and as defined in) the Line of Credit.
6. Continued Effectiveness. Except as specifically provided herein,
the Covered Documents and the Covered Obligations shall remain in full force
and effect and the liens granted to secure the Covered Obligations shall remain
in full force and effect.
7. No Waiver; Cumulative Remedies. No failure to
<PAGE>
6
exercise and no delay in exercising, on the part of the Agent or any Bank, any
right, remedy, power or privilege hereunder or under any Covered Document,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
8. Counterparts; Severability. (a) This Agreement may be executed by
one or more of the parties to this Agreement on any number of separate
counterparts and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
(b) If any clause or provision of this Agreement shall be held illegal
or invalid by any court, the invalidity of such clause or provision shall not
affect any of the remaining clauses, provisions or sections hereof, and this
Agreement shall be construed and enforced as if such illegal or invalid clause
or provision had not been contained herein. In case any agreement or obligation
contained in this Agreement shall be held to be in violation of law, then such
agreement or obligation shall be deemed to be the agreement or obligation of
the parties hereto to the fullest extent permitted by law.
9. Governing Law. This Agreement and the rights and obligations of the
parties under this Agreement shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.
10. Amendments and Waivers. No provision of this Agreement may be
amended or modified in any way, nor may non-compliance therewith be waived,
except pursuant to a written instrument executed by the Agent and the requisite
Banks.
11. Transfer Restrictions. Each of the Banks hereby agrees that it
will not transfer, sell (by participation or absolute assignment), assign or
convey any of the Covered Obligations held by it unless the Person to whom such
obligation is transferred agrees in writing to be bound by the provisions of
this Agreement and to support the Plan of Reorganization. Any such transfer in
violation of this paragraph 11 shall be null and
<PAGE>
7
void.
12. No Third-Party Beneficiaries. The agreements contained herein
shall inure only to the benefit of the parties hereto and of Marvel and its
Subsidiaries. There shall be no third-party beneficiaries hereunder, other than
Marvel and its Subsidiaries. Marvel and its Subsidiaries shall have the right
to enforce the obligations hereunder of the parties hereto as if Marvel and its
Subsidiaries were parties hereto.
13. Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing or sent by
telegraph or telex and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered by hand, or when
deposited in the mail, or in the case of telegraphic notice, when delivered to
the telegraph company, or, in the case of telex notice, when sent, answerback
received, addressed as set forth in the Covered Documents or to such address as
may be hereafter notified by the respective parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank and as
successor by merger to The Chase
Manhattan Bank, N.A.)
By: /s/ Susan E. Atkins
-------------------------------
Name: Susan E. Atkins
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ Paul B. Clifford
-------------------------------
Name: Paul B. Clifford
Title: Deputy General Manager
<PAGE>
8
THE BANK OF NEW YORK
By: /s/ Catherine G. Goff
-------------------------------
Name: Catherine G. Goff
Title: Assistant Vice President
CIBC, INC.
By: /s/ Douglas E. Smith
-------------------------------
Name: Douglas E. Smith
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Alan Sidrane
-------------------------------
Name: Alan Sidrane
Title: First Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Alan Sidrane
-------------------------------
Name: Alan Sidrane
Title: First Vice President
NATIONSBANK, N.A.
By: /s/ Jay T. Wampler
-------------------------------
Name: Jay T. Wampler
Title: Vice President
CORESTATES BANK, N.A.
By: /s/ illegible
-------------------------------
Name:
Title:
TORONTO-DOMINION (NEW YORK) INC.
<PAGE>
9
By: /s/ Robert G. Harris
-------------------------------
Name: Robert G. Harris
Title: Director
THE TORONTO-DOMINION BANK
By: /s/ Robert G. Harris
-------------------------------
Name: Robert G. Harris
Title: Director
THE NIPPON CREDIT BANK, LTD.
By: /s/ Yoshihide Watanabe
-------------------------------
Name: Yoshihide Watanabe
Title: Vice President
BANK OF AMERICA ILLINOIS
By: /s/ Phillip F. Van Winkle
-------------------------------
Name: Phillip F. Van Winkle
Title: Vice President
BANK OF HAWAII
By: /s/ Mark Barra
-------------------------------
Name: Mark Barra
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Richard D. Hill, Jr.
-------------------------------
Name: Richard D. Hill, Jr.
Title: Director
<PAGE>
10
FLEET BANK
By: /s/ Alex Sade
-------------------------------
Name: Alex Sade
Title: Senior Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By: /s/ illegible
-------------------------------
Name:
Title:
RESTRUCTURED OBLIGATIONS BACKED
BY SENIOR ASSETS B.V.
By: Chancellor Senior Secured
Management, Inc., as
Investment Advisor
By: /s/ Christopher Bondy
-------------------------------
Name: Christopher Bondy
Title: Vice President
By:
-------------------------------
Name:
Title:
UNION BANK
By: /s/ illegible
-------------------------------
Name:
Title:
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By: /s/ Teje Teramoto
-------------------------------
Name: Teje Teramoto
Title: Vice President and Manager
<PAGE>
11
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Jeffrey W. Maillet
-------------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President
and Director
BANKERS TRUST COMPANY
By: /s/ Mary Jo Jolly
-------------------------------
Name: Mary Jo Jolly
Title: Assistant Vice President
CHL HIGH YIELD LOAN PORTFOLIO, A
UNIT OF CHASE MANHATTAN BANK
By: /s/ Andrew D. Gordon
-------------------------------
Name: Andrew D. Gordon
Title: Managing Director
CREDIT SUISSE
By: /s/ Joel Glodowski
-------------------------------
Name: Joel Glodowski
Title: Member of Senior
Management
By: /s/ Chris T. Horgan
-------------------------------
Name: Chris T. Horgan
Title: Associate
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Patricia Loret de Mola
-------------------------------
Name: Patricia Loret de Mola
Title: Senior Vice President
<PAGE>
12
BANCO CENTRAL HISPANOAMERICANO S.A.
By: /s/ Louis Ferraira
-------------------------------
Name: Louis Ferraira
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ R. Douglas Henderson
-------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset
Management, L.P., as
Investment Advisor
By: /s/ R. Douglas Henderson
-------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
CERES FINANCE, LTD.
By Chancellor Senior Secured
Management Inc., as
Financial Manager
By: /s/ Christopher A. Bondy
-------------------------------
Name: Christopher A. Bondy
Title: Vice President
By:
-------------------------------
Name:
Title:
<PAGE>
13
CAPTIVA FINANCE, LTD.
By Chancellor Senior Secured
Management Inc., as
Financial Manager
By: /s/ Christopher A. Bondy
-------------------------------
Name: Christopher A. Bondy
Title: Vice President
CITIBANK, N.A.
By:
-------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Mary McLaughlin
-------------------------------
Name: Mary McLaughlin
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.P.A., NEW YORK LIMITED
BRANCH
By:
-------------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By: /s/ illegible
-------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Barbara Sherman
-------------------------------
<PAGE>
14
Name: Barbara Sherman
Title: Vice President
<PAGE>
EXHIBIT 10.36
CONSENT NUMBER 4 AND SECOND AMENDMENT
CONSENT NUMBER 4 AND SECOND AMENDMENT, dated as of November 25, 1996,
to the Credit and Guarantee Agreement, dated as of April 24, 1995 (as amended,
supplemented or otherwise modified from time to time, the "SkyBox Credit
Agreement"), among the Company, Fleer, the banks and other financial
institutions from time to time parties thereto (the "SkyBox Banks") and The
Chase Manhattan Bank (formerly known as Chemical Bank), as administrative agent
(in such capacity, the "Administrative Agent") for the SkyBox Banks.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, Fleer, the SkyBox Banks and the Administrative
Agent are parties to the SkyBox Credit Agreement;
WHEREAS, the Company and Fleer are parties to the Amended and Restated
Credit and Guarantee Agreement, dated as of August 30, 1994 (as amended,
supplemented or otherwise modified, the "Fleer Credit Agreement"), among the
Company, Fleer, the financial institutions parties thereto (the "Fleer Banks"),
the Co-Agents named therein and The Chase Manhattan Bank (formerly known as
Chemical Bank), as administrative agent for the Fleer Banks;
WHEREAS, the Company and Fleer have requested that the SkyBox Credit
Agreement be amended as provided herein and the Fleer Credit Agreement be
amended as provided in Exhibit A hereto; and
WHEREAS, the Administrative Agent and the SkyBox Banks are willing to
consent to such amendments to the SkyBox Credit Agreement and the Fleer Credit
Agreement, but 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, Fleer, the SkyBox
Banks and the Administrative Agent hereby agree as follows:
<PAGE>
2
1. Defined Terms. Unless otherwise defined herein, terms defined in
the SkyBox Credit Agreement shall have such meanings when used herein.
2. Consent. The Administrative Agent and the SkyBox Banks hereby
consent to the amendment of the Fleer Credit Agreement substantially in
accordance with the provisions of Waiver Number 1 and Fifth Amendment attached
hereto as Exhibit A (the "Fleer Amendment") and acknowledge and agree that
provisions of the Fleer Credit Agreement which are expressly stated to be
incorporated by reference in the SkyBox Credit Agreement shall be so
incorporated in the form which is in effect under the Fleer Credit Agreement
after giving effect to the Fleer Amendment.
3. Amendment of Subsection 1.1. Subsection 1.1 of the SkyBox Credit
Agreement hereby is amended by:
(a) deleting in their entirety the definition of the terms "Applicable Margin"
and "Local Loan" contained therein;
(b) inserting therein in proper alphabetical order the following new
definitions:
"Applicable Margin" shall mean (a) for each Alternate Base Rate
Loan, 2% per annum and (b) for each Eurodollar Loan, 3% per annum;
"Local Loan" shall have the meaning from time to time assigned to
such term in the Existing Credit Agreement;
(c) deleting from the parenthetical contained in clause (c) of the definition
of the term "Net Proceeds Event" contained therein the phrase "as in effect
on the date the Second Amendment to Existing Credit Agreement becomes
effective" and substituting therefor the phrase "as in effect from time to
time".
4. Amendment of Subsection 4.10. Subsection 4.10 of the SkyBox Credit
Agreement hereby is amended by deleting the date "December 31, 1994" contained
therein and by substituting therefor the date "November 25, 1996".
5. Amendment of Subsection 11.12(b). Subsection 11.12
<PAGE>
3
of the SkyBox Credit Agreement hereby is amended by deleting clause (b) thereof
in its entirety and by substituting therefor the following:
(b) any collateral and/or guarantee obligations provided for in any
Security Document to the extent necessary to permit the consummation of any
transaction permitted by subsection 8.5 or 8.6 of the Existing Credit
Agreement; provided that any Net Proceeds resulting from such transaction
(other than transactions contemplated by subsection 8.6(i) of the Existing
Credit Agreement and any other transactions permitted by subsection 8.5 or
8.6 of the Existing Credit Agreement as in effect as of November 26, 1996)
are applied in the manner contemplated by subsection 3.2 of this Agreement.
6. Representations and Warranties. Each of the Company and Fleer
hereby confirms, reaffirms and restates the representations and warranties made
by it in Section 4 of the SkyBox Credit Agreement, provided that each reference
to the SkyBox Credit Agreement therein shall be deemed to be a reference to the
SkyBox Credit Agreement after giving effect to this Amendment and to each other
amendment, supplement and other modification executed and delivered by the
Company or any of its Subsidiaries on the date hereof. The Company represents
and warrants that, after giving effect to this Amendment and to each other
amendment, supplement and other modification executed and delivered by the
Company or any of its Subsidiaries on the date hereof, no Default or Event of
Default has occurred and is continuing.
7. Continuing Effect of SkyBox Credit Agreement. This Consent shall
not constitute a waiver, amendment or modification of any other provision of
the SkyBox Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Company or Fleer that would require a waiver or consent of the SkyBox Banks
or the Administrative Agent. Except as expressly amended or modified herein,
the provisions of the SkyBox Credit Agreement are and shall remain in full
force and effect.
8. Counterparts. This Consent may be executed by one or more of the
parties hereto on any number of separate
<PAGE>
4
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.
9. Effectiveness. This Consent shall be effective upon receipt by the
Administrative Agent of:
(a) counterparts hereof, duly executed and delivered by the Company, Fleer and
the Majority Banks; provided that the amendment of the definition of the
term "Net Proceeds Event" set forth in Section 3(c) hereof shall become
effective only upon receipt by the Administrative Agent of counterparts
hereof, duly executed and delivered by the Company, Fleer and the Required
Banks.
(b) an amendment fee, for the account of each SkyBox Bank who executes and
delivers this Consent prior to November 26, 1996, in the amount equal to
12.5 b.p. on the aggregate outstanding principal amount of the Loans of
such SkyBox Bank.
10. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Consent to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written. MARVEL ENERTAINMENT GORUP, INC.
By: /s/ Bobby G. Jenkins
-------------------------------
Name: Bobby G. Jenkins
Title: Chief Financial Officer
FLEER CORP.
By: /s/ William H. Marks
-------------------------------
Name: William H. Marks
Title: Chief Financial Officer
<PAGE>
5
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank and as
successor by merger to The Chase
Manhattan Bank, N.A.), as
Administrative Agent and as a
SkyBox Bank
By: /s/ Susan E. Atkins
-------------------------------
Name: Susan E. Atkins
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ Paul B. Clifford
-------------------------------
Name: Paul B. Clifford
Title: Deputy General Manager
THE BANK OF NEW YORK
By: /s/ Catherine G. Goff
-------------------------------
Name: Catherine G. Goff
Title: Assistant Vice President
CIBC, INC.
By: /s/ illegible
-------------------------------
Name:
Title: Director CIBC Wood Gundy
Securities Corp., as
agent
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Frederick Haddad
-------------------------------
Name: Frederick Haddad
Title: Senior Vice President
<PAGE>
6
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Frederick Haddad
-------------------------------
Name: Frederick Haddad
Title: Authorized Signatory
NATIONSBANK, N.A.
By: /s/ Margaret Flanagan
-------------------------------
Name: Margaret Flanagan
Title: Associate
CORESTATES BANK, N.A.
By: /s/ illegible
-------------------------------
Name:
Title:
TORONTO-DOMINION (NEW YORK) INC.
By: /s/ Victor J. Huebner
-------------------------------
Name: Victor J. Huebner
Title: Director
THE NIPPON CREDIT BANK, LTD.
By: /s/ Yoshihide Watanabe
-------------------------------
Name: Yoshihide Watanabe
Title: Vice President
and Manager
BANK OF AMERICA ILLINOIS
By: /s/ L. Dustin Vincent
-------------------------------
Name: L. Dustin Vincent
Title: Managing Director
<PAGE>
7
BANK OF HAWAII
By: /s/ Mark Bara
-------------------------------
Name: Mark Bara
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Richard D. Hill, Jr.
-------------------------------
Name: Richard D. Hill, Jr.
Title: Director
FLEET BANK
By: /s/ Alex Sade
-------------------------------
Name: Alex Sade
Title: Senior Vice President
THE SUMITOMO BANK, LIMITED, NEW
YORK BRANCH
By: /s/ John C. Kissinger
-------------------------------
Name: John C. Kissinger
Title: Joint General Manager
RESTRUCTURED OBLIGATIONS BACKED
BY SENIOR ASSETS B.V.
By: Chancellor LGT Senior
Secured Management, Inc.,
as Portfolio Advisor
By: /s/ Christopher A. Bondy
-------------------------------
Name: Christopher A. Bondy
Title: Vice President
By:
-------------------------------
Name:
Title:
<PAGE>
8
UNION BANK
By: /s/ B. Adam Trout
-------------------------------
Name: B. Adam Trout
Title: Assistant Vice President
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By: /s/ Teje Teramoto
-------------------------------
Name: Teje Teramoto
Title: Vice President
and Manager
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Brian Good
-------------------------------
Name: Brian Good
Title: Vice President
BANKERS TRUST COMPANY
By:
-------------------------------
Name:
Title:
CHL HIGH YIELD LOAN PORTFOLIO, A
UNIT OF THE CHASE MANHATTAN BANK
By: /s/ Andrew D. Gordon
-------------------------------
Name: Andrew D. Gordon
Title: Managing Director
<PAGE>
9
CREDIT SUISSE
By: /s/ Joel Glodowski
-------------------------------
Name: Joel Glodowski
Title: Member of Senior
Management
By: /s/ Chris T. Horgan
-------------------------------
Name: Chris T. Horgan
Title: Associate
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Patricia Loret de Mola
-------------------------------
Name: Patricia Loret de Mola
Title: Senior Vice President
BANCO CENTRAL HISPANOAMERICANO S.A.
By: /s/ Louis Ferraira
-------------------------------
Name: Louis Ferraira
Title: Vice President
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ illegible
-------------------------------
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset
Management, L.P., as
Investment Advisor
By: /s/ illegible
-------------------------------
Name:
Title:
<PAGE>
10
CERES FINANCE, LTD.
By: /s/ Darren P. Riley
-------------------------------
Name: Darren P. Riley
Title: Director
CAPTIVA FINANCE, LTD.
By: /s/ Darren P. Riley
-------------------------------
Name: Darren P. Riley
Title: Director
<PAGE>
EXHIBIT A
WAIVER NUMBER 1 AND FIFTH AMENDMENT
WAIVER NUMBER 1 AND FIFTH AMENDMENT, dated as of November 25, 1996
(this "Amendment"), to the Amended and Restated Credit and Guarantee Agreement,
dated as of August 30, 1994 (as amended, supplemented or otherwise modified,
the "Fleer Credit Agreement"), among Marvel Entertainment Group, Inc. (the
"Company"), Fleer Corp. ("Fleer"), the banks and other financial institutions
from time to time parties thereto (the "Fleer Banks"), the Co-Agents named
therein and The Chase Manhattan Bank (formerly known as Chemical Bank), as
administrative agent (in such capacity, the "Administrative Agent") for the
Fleer Banks.
W I T N E S S E T H:
WHEREAS, the Company, Fleer, the Fleer Banks and the Administrative
Agent are parties to the Fleer Credit Agreement;
WHEREAS, the Company and Fleer have requested that the Administrative
Agent and the Fleer Banks consent to certain transactions and amend certain
provisions of the Fleer Credit Agreement, as set forth herein; and
WHEREAS, the Administrative Agent and the Fleer Banks are willing to
grant such consents and to effect such amendments, but 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, Fleer, the Fleer
Banks and the Administrative Agent hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Fleer Credit Agreement shall have such meanings when used herein.
2. Waiver of Subsection 8.1. The Administrative Agent and the Fleer
Banks hereby waive compliance with the provisions of subsection 8.1 of the
Fleer Credit Agreement for all periods ending during the period from September
30, 1996 through March 30, 1997.
3. Amendment of Subsection 1.1. Subsection 1.1 of the Fleer Credit
Agreement hereby is amended by:
<PAGE>
2
(a) deleting in their entirety the definition of the terms "Applicable Margin",
"Exposure" and "Participation Agreement" contained therein;
(b) inserting therein in proper alphabetical order the following definitions:
"Applicable Margin" shall mean (a) for each Alternate Base Rate
Loan, 2% per annum and (b) for each Eurodollar Loan, 3% per annum.
"Exposure" shall mean, at any date, the sum of the Aggregate
Commitment at such date and the aggregate amount of participating
interests in the Italian L/C then held by the Fleer Banks parties to
the Participation Agreement;
"Italian L/C" shall mean the letter of credit issued by The Chase
Manhattan Bank for the account of Panini which secures the obligations
owing by Panini to the Local Lender on account of the Local Loan;
"Participation Agreement" shall mean the Participation Agreement,
dated as of November 30, 1996, among the Participants named therein
and The Chase Manhattan Bank, as the same may be amended, supplemented
or otherwise modified from time to time;
(c) deleting from the parenthetical contained in clause (c) of the definition
of the term "Net Proceeds Event" contained therein the phrase "as in effect
as of the Second Amendment Effective Date" and substituting therefor the
phrase "as in effect from time to time".
4. Amendment of Subsection 5.10. Subsection 5.10 of the Fleer Credit
Agreement hereby is amended by deleting the date "December 31, 1993" contained
therein and by substituting therefor the date "November 25, 1996".
5. Amendment of Subsection 8.2. Subsection 8.2 of the Fleer Credit
Agreement hereby is amended by:
(a) deleting clause (j) thereof in its entirety and substituting therefor the
following:
<PAGE>
3
(j) Indebtedness in respect of lines of credit for Panini and its
Subsidiaries in an aggregate principal amount not to exceed Italian
Lira 75,000,000,000 at any one time outstanding; provided that the
proceeds of any borrowings under such lines of credit are used for
working capital purposes of the Company and its Subsidiaries;
(b) deleting from clause (n) thereof the word "and" which appears immediately
following the semi-colon at the end thereof;
(c) deleting from clause (o) thereof (i) the date "December 31, 1996" and
substituting therefor the date "March 30, 1997" and (ii) the period which
appears at the end thereof and substituting therefor a semi-colon followed
by the word "and"; and
(d) inserting therein as new clause (p) thereof the following:
(p) Indebtedness of Panini in respect of the Italian L/C.
6. Amendment of Subsection 8.6. Subsection 8.6 of the Fleer Credit
Agreement hereby is amended by:
(a) deleting from clause (g) thereof the word "and" which appears immediately
following the semi-colon at the end thereof;
(b) deleting from clause (h) thereof the period which appears at the end
thereof by substituting therefor a semi-colon followed by the word "and";
and
(c) inserting therein as a new clause (i) thereof the following:
(i) the sale to Affiliates of the Company or other third parties
of accounts receivable and other assets of the Company and its
Subsidiaries upon terms approved by the Majority Banks; provided that
(1) the sum of (A) the aggregate fair market value of assets (other
than accounts receivable) sold and (B) the amount equal to (i) the
aggregate purchase price paid for all accounts receivable sold minus
(ii) payments received from account debtors in respect of accounts
receivable previously sold, does not exceed $50,000,000
<PAGE>
4
in the aggregate and (2) the proceeds thereof shall be used by the
Company and its Subsidiaries for working capital purposes in the
ordinary course of business.
7. Amendment of Subsection 8.10. Subsection 8.10 of the Fleer Credit
Agreement hereby is amended by (a) deleting the word "and" which appears at the
end of clause (iii) of the proviso thereto and substituting a comma therefor
and (b) inserting immediately before the period at the end thereof the
following:
and (v) sales, transfers and other dispositions permitted by subsection
8.6(i)
8. Amendment of Subsection 12.12(b). Subsection 12.12 of the Fleer
Credit Agreement hereby is amended by deleting clause (b) thereof in its
entirety and by substituting therefor the following:
(b) any collateral and/or guarantee obligations provided for in any
Security Document to the extent necessary to permit the consummation of any
transaction permitted by subsection 8.5 or 8.6 of this Agreement; provided
that any Net Proceeds resulting from such transaction (other than
transactions contemplated by subsection 8.6(i) and any other transactions
permitted by subsection 8.5 or 8.6 as in effect as of November 26, 1996)
are applied in the manner contemplated by subsection 4.3 of this Agreement.
9. Consent. The Administrative Agent and the Banks hereby consent that
either:
(a) the Term Loan and Guarantee Agreement, dated as of August 30, 1994
(as amended, supplemented or otherwise modified from time to time, the
"Existing Italian Agreement"), among the Company, Panini S.p.A. (formerly
known as Marvel Comics Italia S.r.l.) and Istituto Bancario San Paolo di
Torino, S.p.A., may be amended in order to (i) decrease the "Applicable
Margin" set forth therein, (ii) loosen or eliminate certain covenants and
defaults contained therein and/or (iii) permit the Lender thereunder (and
as defined therein) to assign its rights and obligations thereunder to
another lender reasonably acceptable to the Administrative Agent; provided
that the terms of such amendment are approved by the Majority Banks; or
<PAGE>
5
(b) Panini S.p.A. may enter into a term loan agreement (the
"Substitute Italian Agreement") with a lender approved by the Majority
Banks in an aggregate principal amount not to exceed the amount presently
outstanding under the Existing Italian Agreement, bearing interest at a
rate not in excess of that applicable to amounts under the Existing Italian
Agreement, having a final maturity and amortization which is identical to
that contained in the Existing Italian Agreement and otherwise having terms
which are approved by the Majority Banks; provided that the proceeds of the
Substitute Italian Agreement are applied to pay all amounts outstanding
under the Existing Italian Agreement.
In the event that Panini S.p.A. does enter into the Substitute Italian
Agreement, all references to the term (i) "Local Lender" contained in the Fleer
Credit Agreement shall be deemed to be references to the lender party to the
Local Loan Agreement, (ii) "Local Loan Agreement" contained in the Fleer Credit
Agreement shall be deemed to be references to such amended and restated
agreement and (iii) "Local Loan" contained in the Fleer Credit Agreement shall
be deemed to be references to the loan under the Local Loan Agreement.
10. Representations and Warranties. Each of the Company and Fleer
hereby confirms, reaffirms and restates the representations and warranties made
by it in Section 5 of the Fleer Credit Agreement, provided that each reference
to the Fleer Credit Agreement therein shall be deemed to be a reference to the
Fleer Credit Agreement after giving effect to this Amendment and to each other
amendment, supplement and other modification executed and delivered by the
Company or any of its Subsidiaries on the date hereof. The Company represents
and warrants that, after giving effect to this Amendment and to each other
amendment, supplement and other modification executed and delivered by the
Company or any of its Subsidiaries on the date hereof, no Default or Event of
Default has occurred and is continuing.
11. Continuing Effect of Fleer Credit Agreement. This Amendment shall
not constitute a waiver, amendment or modification of any other provision of
the Fleer Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Company or Fleer that would require a waiver or consent of the Fleer Banks
or the Administrative Agent. Except as expressly
<PAGE>
6
amended or modified herein, the provisions of the Fleer Credit Agreement are
and shall remain in full force and effect.
12. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all such counterparts
shall be deemed to be one and the same instrument. Each party hereto confirms
that any facsimile copy of such party's executed counterpart of this Amendment
(or its signature page thereof) shall be deemed to be an executed original
thereof.
13. Effectiveness. This Amendment shall be effective upon receipt by
the Administrative Agent of:
(a) counterparts hereof, duly executed and delivered by the Company, Fleer and
the Majority Banks; provided that (i) the amendment of the definition of
the term "Net Proceeds Event" contained in Section 3(c) hereof shall be
effective only upon receipt of counterparts hereof, duly executed and
delivered by the Company, Fleer and the Required Banks and (ii) the
amendment of the terms "Exposure", "Italian L/C" and "Participation
Agreement" shall become effective only upon the issuance of the Italian
L/C; and
(b) an amendment fee, for the account of each Fleer Bank who executes and
delivers the Amendment prior to November 26, 1996, in the amount equal to
12.5 b.p. on the Revolving Credit Commitment of such Fleer Bank.
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
7
FLEER CORP.
By:
Name:
Title:
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank and as
successor by merger to The Chase
Manhattan Bank, N.A.), as
Administrative Agent and as a Bank
By:
-------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By:
-------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------------
Name:
Title:
CIBC, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
8
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By:
-------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
-------------------------------
Name:
Title:
CORESTATES BANK, N.A.
By:
-------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK
By:
-------------------------------
Name:
Title:
THE NIPPON CREDIT BANK, LTD.
By:
-------------------------------
Name:
Title:
<PAGE>
9
BANK OF AMERICA ILLINOIS
By:
-------------------------------
Name:
Title:
BANK OF HAWAII
By:
-------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
-------------------------------
Name:
Title:
FLEET BANK
By:
-------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED, NEW
YORK BRANCH
By:
-------------------------------
Name:
Title:
UNION BANK
By:
-------------------------------
Name:
Title:
<PAGE>
10
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By:
-------------------------------
Name:
Title:
CITIBANK, N.A.
By:
-------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:
-------------------------------
Name:
Title:
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.P.A., NEW YORK LIMITED
BRANCH
By:
-------------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By:
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.37
WAIVER NUMBER 1 AND FIFTH AMENDMENT
WAIVER NUMBER 1 AND FIFTH AMENDMENT, dated as of November 25, 1996
(this "Amendment"), to the Amended and Restated Credit and Guarantee Agreement,
dated as of August 30, 1994 (as amended, supplemented or otherwise modified,
the "Fleer Credit Agreement"), among Marvel Entertainment Group, Inc. (the
"Company"), Fleer Corp. ("Fleer"), the banks and other financial institutions
from time to time parties thereto (the "Fleer Banks"), the Co-Agents named
therein and The Chase Manhattan Bank (formerly known as Chemical Bank), as
administrative agent (in such capacity, the "Administrative Agent") for the
Fleer Banks.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, Fleer, the Fleer Banks and the Administrative
Agent are parties to the Fleer Credit Agreement;
WHEREAS, the Company and Fleer have requested that the Administrative
Agent and the Fleer Banks consent to certain transactions and amend certain
provisions of the Fleer Credit Agreement, as set forth herein; and
WHEREAS, the Administrative Agent and the Fleer Banks are willing to
grant such consents and to effect such amendments, but 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, Fleer, the Fleer
Banks and the Administrative Agent hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in
the Fleer Credit Agreement shall have such meanings when used herein.
2. Waiver of Subsection 8.1. The Administrative Agent and the Fleer
Banks hereby waive compliance with the provisions of subsection 8.1 of the
Fleer Credit Agreement for all periods ending during the period from September
30, 1996 through March 30, 1997.
<PAGE>
2
3. Amendment of Subsection 1.1. Subsection 1.1 of the Fleer Credit
Agreement hereby is amended by:
(a) deleting in their entirety the definition of the terms "Applicable Margin",
"Exposure" and "Participation Agreement" contained therein;
(b) inserting therein in proper alphabetical order the following definitions:
"Applicable Margin" shall mean (a) for each Alternate Base Rate
Loan, 2% per annum and (b) for each Eurodollar Loan, 3% per annum.
"Exposure" shall mean, at any date, the sum of the Aggregate
Commitment at such date and the aggregate amount of participating
interests in the Italian L/C then held by the Fleer Banks parties to
the Participation Agreement;
"Italian L/C" shall mean the letter of credit issued by The Chase
Manhattan Bank for the account of Panini which secures the obligations
owing by Panini to the Local Lender on account of the Local Loan;
"Participation Agreement" shall mean the Participation Agreement,
dated as of November 30, 1996, among the Participants named therein
and The Chase Manhattan Bank, as the same may be amended, supplemented
or otherwise modified from time to time;
(c) deleting from the parenthetical contained in clause (c) of the definition
of the term "Net Proceeds Event" contained therein the phrase "as in effect
as of the Second Amendment Effective Date" and substituting therefor the
phrase "as in effect from time to time".
4. Amendment of Subsection 5.10. Subsection 5.10 of the Fleer Credit
Agreement hereby is amended by deleting the date "December 31, 1993" contained
therein and by substituting therefor the date "November 25, 1996".
5. Amendment of Subsection 8.2. Subsection 8.2 of the Fleer Credit
Agreement hereby is amended by:
<PAGE>
3
(a) deleting clause (j) thereof in its entirety and substituting therefor the
following:
(j) Indebtedness in respect of lines of credit for Panini and its
Subsidiaries in an aggregate principal amount not to exceed Italian
Lira 75,000,000,000 at any one time outstanding; provided that the
proceeds of any borrowings under such lines of credit are used for
working capital purposes of the Company and its Subsidiaries;
(b) deleting from clause (n) thereof the word "and" which appears immediately
following the semi-colon at the end thereof;
(c) deleting from clause (o) thereof (i) the date "December 31, 1996" and
substituting therefor the date "March 30, 1997" and (ii) the period which
appears at the end thereof and substituting therefor a semi-colon followed
by the word "and"; and
(d) inserting therein as new clause (p) thereof the following:
(p) Indebtedness of Panini in respect of the Italian L/C.
6. Amendment of Subsection 8.6. Subsection 8.6 of the Fleer Credit
Agreement hereby is amended by:
(a) deleting from clause (g) thereof the word "and" which appears immediately
following the semi-colon at the end thereof;
(b) deleting from clause (h) thereof the period which appears at the end
thereof by substituting therefor a semi-colon followed by the word "and";
and
(c) inserting therein as a new clause (i) thereof the following:
(i) the sale to Affiliates of the Company or other third parties
of accounts receivable and other assets of the Company and its
Subsidiaries upon terms approved by the Majority Banks; provided that
(1) the sum of (A) the aggregate fair market value of assets (other
than accounts receivable) sold and (B) the
<PAGE>
4
amount equal to (i) the aggregate purchase price paid for all accounts
receivable sold minus (ii) payments received from account debtors in
respect of accounts receivable previously sold, does not exceed
$50,000,000 in the aggregate and (2) the proceeds thereof shall be
used by the Company and its Subsidiaries for working capital purposes
in the ordinary course of business.
7. Amendment of Subsection 8.10. Subsection 8.10 of the Fleer Credit
Agreement hereby is amended by (a) deleting the word "and" which appears at the
end of clause (iii) of the proviso thereto and substituting a comma therefor
and (b) inserting immediately before the period at the end thereof the
following:
and (v) sales, transfers and other dispositions permitted by subsection
8.6(i)
8. Amendment of Subsection 12.12(b). Subsection 12.12 of the Fleer
Credit Agreement hereby is amended by deleting clause (b) thereof in its
entirety and by substituting therefor the following:
(b) any collateral and/or guarantee obligations provided for in any
Security Document to the extent necessary to permit the consummation of any
transaction permitted by subsection 8.5 or 8.6 of this Agreement; provided
that any Net Proceeds resulting from such transaction (other than
transactions contemplated by subsection 8.6(i) and any other transactions
permitted by subsection 8.5 or 8.6 as in effect as of November 26, 1996)
are applied in the manner contemplated by subsection 4.3 of this Agreement.
9. Consent. The Administrative Agent and the Banks hereby consent that
either:
(a) the Term Loan and Guarantee Agreement, dated as of August 30, 1994
(as amended, supplemented or otherwise modified from time to time, the
"Existing Italian Agreement"), among the Company, Panini S.p.A. (formerly
known as Marvel Comics Italia S.r.l.) and Istituto Bancario San Paolo di
Torino, S.p.A., may be amended in order to (i) decrease the "Applicable
Margin" set forth therein, (ii) loosen or eliminate certain covenants and
defaults contained
<PAGE>
5
therein and/or (iii) permit the Lender thereunder (and as defined therein)
to assign its rights and obligations thereunder to another lender
reasonably acceptable to the Administrative Agent; provided that the terms
of such amendment are approved by the Majority Banks; or
(b) Panini S.p.A. may enter into a term loan agreement (the
"Substitute Italian Agreement") with a lender approved by the Majority
Banks in an aggregate principal amount not to exceed the amount presently
outstanding under the Existing Italian Agreement, bearing interest at a
rate not in excess of that applicable to amounts under the Existing Italian
Agreement, having a final maturity and amortization which is identical to
that contained in the Existing Italian Agreement and otherwise having terms
which are approved by the Majority Banks; provided that the proceeds of the
Substitute Italian Agreement are applied to pay all amounts outstanding
under the Existing Italian Agreement.
In the event that Panini S.p.A. does enter into the Substitute Italian
Agreement, all references to the term (i) "Local Lender" contained in the Fleer
Credit Agreement shall be deemed to be references to the lender party to the
Local Loan Agreement, (ii) "Local Loan Agreement" contained in the Fleer Credit
Agreement shall be deemed to be references to such amended and restated
agreement and (iii) "Local Loan" contained in the Fleer Credit Agreement shall
be deemed to be references to the loan under the Local Loan Agreement.
10. Representations and Warranties. Each of the Company and Fleer
hereby confirms, reaffirms and restates the representations and warranties made
by it in Section 5 of the Fleer Credit Agreement, provided that each reference
to the Fleer Credit Agreement therein shall be deemed to be a reference to the
Fleer Credit Agreement after giving effect to this Amendment and to each other
amendment, supplement and other modification executed and delivered by the
Company or any of its Subsidiaries on the date hereof. The Company represents
and warrants that, after giving effect to this Amendment and to each other
amendment, supplement and other modification executed and delivered by the
Company or any of its Subsidiaries on the date hereof, no Default or Event of
Default has occurred and is continuing.
<PAGE>
6
11. Continuing Effect of Fleer Credit Agreement. This Amendment shall
not constitute a waiver, amendment or modification of any other provision of
the Fleer Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the part of
the Company or Fleer that would require a waiver or consent of the Fleer Banks
or the Administrative Agent. Except as expressly amended or modified herein,
the provisions of the Fleer Credit Agreement are and shall remain in full force
and effect.
12. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all such counterparts
shall be deemed to be one and the same instrument. Each party hereto confirms
that any facsimile copy of such party's executed counterpart of this Amendment
(or its signature page thereof) shall be deemed to be an executed original
thereof.
13. Effectiveness. This Amendment shall be effective upon receipt by
the Administrative Agent of:
(a) counterparts hereof, duly executed and delivered by the Company, Fleer and
the Majority Banks; provided that (i) the amendment of the definition of
the term "Net Proceeds Event" contained in Section 3(c) hereof shall be
effective only upon receipt of counterparts hereof, duly executed and
delivered by the Company, Fleer and the Required Banks and (ii) the
amendment of the terms "Exposure", "Italian L/C" and "Participation
Agreement" shall become effective only upon the issuance of the Italian
L/C; and
(b) an amendment fee, for the account of each Fleer Bank who executes and
delivers the Amendment prior to November 26, 1996, in the amount equal to
12.5 b.p. on the Revolving Credit Commitment of such Fleer Bank.
<PAGE>
7
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
MARVEL ENTERTAINEMENT GROUP, INC.
By: /s/ Bobby G. Jenkins
--------------------------------
Name: Bobby G. Jenkins
Title: Chief Financial Officer
FLEER CORP.
By: /s/ William H. Marks
--------------------------------
Name: William H. Marks
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank and as
successor by merger to The Chase
Manhattan Bank, N.A.), as
Administrative Agent and as a Bank
By: /s/ Susan E. Atkins
--------------------------------
Name: Susan E. Atkins
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ Paul B. Clifford
--------------------------------
Name: Paul B. Clifford
Title: Deputy General Manager
<PAGE>
8
THE BANK OF NEW YORK
By: /s/ Catherine G. Goff
--------------------------------
Name: Catherine G. Goff
Title: Assistant Vice President
CIBC, INC.
By: /s/ illegible
--------------------------------
Name:
Title: Director CIBC Wood
Gendy Securities Corp.,
as agent
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Frederick Haddad
--------------------------------
Name: Frederick Haddad
Title: Senior Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Frederick Haddad
--------------------------------
Name: Frederick Haddad
Title: Authorized Signature
NATIONSBANK, N.A.
By: /s/ Margaret Flanagan
--------------------------------
Name: Margaret Flanagan
Title: Associate
CORESTATES BANK, N.A.
By: /s/ illegible
--------------------------------
Name:
Title:
<PAGE>
9
THE TORONTO-DOMINION BANK
By: /s/ illegible
--------------------------------
Name:
Title:
THE NIPPON CREDIT BANK, LTD.
By: /s/ Yoshihide Watanabe
--------------------------------
Name: Yoshihide Watanabe
Title: Vice President
and Manager
BANK OF AMERICA ILLINOIS
By: /s/ L. Dustin Vincent
--------------------------------
Name: L. Dustin Vincent
Title: Managing Director
BANK OF HAWAII
By: /s/ Mark Barra
--------------------------------
Name: Mark Barra
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Richard D. Hill, Jr.
--------------------------------
Name: Richard D. Hill, Jr.
Title: Director
FLEET BANK
By: /s/ Alex Sade
--------------------------------
Name: Alex Sade
Title: Senior Vice President
<PAGE>
10
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By: /s/ John C. Kissinger
--------------------------------
Name: John C. Kissinger
Title: Joint General Manager
UNION BANK
By: /s/ B. Adam Trout
--------------------------------
Name: B. Adam Trout
Title: Assistant Vice President
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By: /s/ Teje Teramoto
--------------------------------
Name: Teje Teramoto
Title: Vice President
and Manager
CITIBANK, N.A.
By: /s/ James Buchanan
--------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Mary McLaughlin
--------------------------------
Name: Mary McLaughlin
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.P.A., NEW YORK LIMITED
BRANCH
By:
--------------------------------
Name:
Title:
<PAGE>
11
FIRST HAWAIIAN BANK
By: /s/ Kathryn A. Plumb
--------------------------------
Name: Kathryn A. Plumb
Title: Vice President
<PAGE>
EXHIBIT 10.38
===============================================================================
REVOLVING CREDIT AND GUARANTY AGREEMENT
===============================================================================
AMONG
MARVEL ENTERTAINMENT GROUP, INC., A DEBTOR-IN-POSSESSION,
AS BORROWER
-----------
THE SUBSIDIARIES OF THE BORROWER NAMED HEREIN,
AS GUARANTORS
-------------
AND
THE BANKS PARTY HERETO,
AND
THE CHASE MANHATTAN BANK,
AS AGENT
--------
===============================================================================
DATED AS OF DECEMBER 27, 1996
===============================================================================
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT
TABLE OF CONTENTS
Page No.
SECTION 1. DEFINITIONS...........................................3
SECTION 1.1. Defined Terms.........................................3
SECTION 1.2. Terms Generally......................................21
SECTION 2. AMOUNT AND TERMS OF CREDIT...........................21
SECTION 2.1. Commitment of the Banks..............................21
SECTION 2.2. Letters of Credit....................................22
SECTION 2.3. Issuance.............................................25
SECTION 2.4. Nature of Letter of Credit Obligations
Absolute.............................................25
SECTION 2.5. Making of Loans......................................25
SECTION 2.6 Notes; Repayment of Loans............................27
SECTION 2.7. Interest on Loans....................................27
SECTION 2.8. Default Interest.....................................28
SECTION 2.9. Optional Termination or Reduction of
Commitment...........................................28
SECTION 2.10 Alternate Rate of Interest...........................29
SECTION 2.11. Refinancing of Loans.................................29
SECTION 2.12. Commitment Termination; Cash
Collateral...........................................30
SECTION 2.13. Optional Prepayment of Loans;
Reimbursement of Banks...............................31
SECTION 2.14. Reserve Requirements; Change in
Circumstances........................................33
SECTION 2.15. Change in Legality...................................35
SECTION 2.16. Pro Rata Treatment, etc..............................36
SECTION 2.17. Taxes................................................36
SECTION 2.18. Certain Fees.........................................39
SECTION 2.19. Commitment Fee.......................................40
SECTION 2.20. Letter of Credit Fees................................40
SECTION 2.21. Nature of Fees.......................................40
SECTION 2.22. Priority and Liens...................................41
SECTION 2.23. Right of Set-Off.....................................42
SECTION 2.24. Security Interest in Letter of Credit
Account..............................................43
i
<PAGE>
SECTION 2.25. Payment of Obligations...............................43
SECTION 2.26. No Discharge; Survival of Claims.....................43
SECTION 2.27. Use of Cash Collateral...............................43
SECTION 3. REPRESENTATIONS AND WARRANTIES.......................44
SECTION 3.1. Organization and Authority...........................44
SECTION 3.2. Due Execution........................................44
SECTION 3.3. Statements Made......................................45
SECTION 3.4. Financial Statements.................................45
SECTION 3.5. Ownership............................................46
SECTION 3.6. Liens................................................46
SECTION 3.7. Compliance with Law..................................46
SECTION 3.8. Insurance............................................47
SECTION 3.9. The Orders...........................................47
SECTION 3.10. Use of Proceeds......................................48
SECTION 3.11. Litigation...........................................48
SECTION 4. CONDITIONS OF LENDING................................48
SECTION 4.1. Conditions Precedent to Initial Loans
and Initial
Letters of Credit. ..................................48
SECTION 4.2. Conditions Precedent to Each Loan
and Each Letter of Credit............................53
SECTION 5. AFFIRMATIVE COVENANTS................................55
SECTION 5.1. Financial Statements, Reports, etc...................55
SECTION 5.2. Corporate Existence..................................59
SECTION 5.3. Insurance............................................59
SECTION 5.4. Obligations and Taxes................................59
SECTION 5.5. Notice of Event of Default, etc......................59
SECTION 5.6. Access to Books and Records..........................60
SECTION 5.7. Business Plan........................................60
SECTION 5.8. Maintenance of Concentration Account.................60
SECTION 6. NEGATIVE COVENANTS...................................60
SECTION 6.1. Liens................................................61
SECTION 6.2. Merger, etc..........................................61
SECTION 6.3. Indebtedness.........................................61
SECTION 6.4. Capital Expenditures.................................61
SECTION 6.5. EBITDA...............................................62
SECTION 6.6. Guarantees and Other Liabilities.....................62
ii
<PAGE>
SECTION 6.7. Chapter 11 Claims....................................63
SECTION 6.8. Dividends; Capital Stock.............................63
SECTION 6.9. Transactions with Affiliates.........................63
SECTION 6.10. Investments, Loans and Advances......................63
SECTION 6.11. Disposition of Assets................................64
SECTION 6.12. Nature of Business...................................64
SECTION 7. EVENTS OF DEFAULT....................................64
SECTION 7.1. Events of Default....................................64
SECTION 8. THE AGENT............................................69
SECTION 8.1. Administration by Agent..............................69
SECTION 8.2. Advances and Payments................................70
SECTION 8.3. Sharing of Setoffs...................................70
SECTION 8.4. Agreement of Required Banks..........................71
SECTION 8.5. Liability of Agent...................................71
SECTION 8.6. Reimbursement and Indemnification....................72
SECTION 8.7. Rights of Agent......................................73
SECTION 8.8. Independent Banks....................................73
SECTION 8.9. Notice of Transfer...................................73
SECTION 8.10. Successor Agent......................................74
SECTION 9. GUARANTY.............................................74
SECTION 9.1. Guaranty.............................................74
SECTION 9.2. No Impairment of Guaranty............................76
SECTION 9.3. Subrogation..........................................76
SECTION 10. MISCELLANEOUS........................................77
SECTION 10.1. Notices..............................................77
SECTION 10.2. Survival of Agreement, Representations
and Warranties, etc..................................77
SECTION 10.3. Successors and Assigns...............................78
SECTION 10.4. Confidentiality......................................81
SECTION 10.5. Expenses.............................................82
SECTION 10.6 Indemnity............................................82
SECTION 10.7. CHOICE OF LAW........................................83
SECTION 10.8. No Waiver............................................83
SECTION 10.9. Extension of Maturity................................83
SECTION 10.10 Amendments, etc......................................83
SECTION 10.11.Severability.........................................85
SECTION 10.12.Headings.............................................85
iii
<PAGE>
SECTION 10.13.Execution in Counterparts............................85
SECTION 10.14.Prior Agreements.....................................86
SECTION 10.15.Further Assurances...................................86
SECTION 10.16.WAIVER OF JURY TRIAL.................................86
ANNEX A - Commitment Amounts
EXHIBIT A - Form of Note
EXHIBIT B-1 - Form of Interim Order
EXHIBIT B-2 - Form of Final Order
EXHIBIT C - Form of Security and Pledge
Agreement
EXHIBIT D - Form of Opinion of Counsel
EXHIBIT E - Form of Assignment and Acceptance
SCHEDULE 1.1 - Existing Agreements
SCHEDULE 3.5 - Subsidiaries
SCHEDULE 3.6 - Pre-Petition Liens
SCHEDULE 3.11 - Litigation
iv
<PAGE>
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of December 27, 1996
REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of December 27, 1996
among MARVEL ENTERTAINMENT GROUP, INC., a Delaware corporation (the
"Borrower"), a debtor and debtor-in-possession in a case pending under Chapter
11 of the Bankruptcy Code, each of the direct or indirect Subsidiaries of the
Borrower signatory hereto (each a "Guarantor" and collectively, the
"Guarantors"), each of which Guarantors referred to in this paragraph is a
debtor and a debtor-in-possession in a case pending under Chapter 11 of the
Bankruptcy Code (the cases of the Borrower and the Guarantors, each a "Case"
and collectively, the "Cases"), THE CHASE MANHATTAN BANK, a New York banking
corporation ("Chase"), each of the other financial institutions from time to
time party hereto (together with Chase, the "Banks") and THE CHASE MANHATTAN
BANK, as agent (in such capacity, the "Agent") for the Banks.
INTRODUCTORY STATEMENT
On December 27, 1996, the Borrower and the Guarantors filed voluntary
petitions with the Bankruptcy Court initiating the Cases and have continued in
the possession of their assets and in the management of their businesses
pursuant to Sections 1107 and 1108 of the Bankruptcy Code.
The Borrower has applied to the Banks for a revolving credit and
letter of credit facility in an aggregate principal amount not to exceed
$100,000,000 (subject to mandatory and optional reductions in accordance with
Sections 2.9 and 2.12), all of the Borrower's obligations under which are to be
guaranteed by the Guarantors.
The proceeds of the Loans will be used to provide working capital for
the Borrower and the Guarantors, and for other general corporate purposes of
the Borrower and the Guarantors including for the making of permitted
intercompany loans and advances and for Capital Expenditures.
To provide guarantees and security for the repayment of the Loans, the
reimbursement of any draft drawn under a Letter of Credit and the payment of
the other obligations of the Borrower and the Guarantors hereunder and under
the other Loan Documents, the Borrower and the Guarantors will provide to the
Agent and the Banks the following (each as more fully described herein):
<PAGE>
(a) a guaranty from each of the Guarantors of the due and
punctual payment and performance of the obligations of the Borrower
hereunder and under the Notes;
(b) with respect to the obligations of the Borrower and the
Guarantors hereunder, an allowed administrative expense claim in each
of the Cases pursuant to Section 364(c)(1) of the Bankruptcy Code
having priority over all administrative expenses of the kind specified
in Sections 503(b) and 507(b) of the Bankruptcy Code;
(c) with respect to the obligations of the Borrower and the
Guarantors hereunder, a perfected first priority Lien, pursuant to
Section 364(c)(2) of the Bankruptcy Code, upon all unencumbered
property of the Borrower and the Guarantors (including, but not
limited to, all of the capital stock of Toy Biz that is held,
beneficially or of record, by the Borrower or any of the Guarantors)
and all cash and cash equivalents in the Letter of Credit Account;
(d) with respect to the obligations of the Borrower and the
Guarantors hereunder, a perfected Lien, pursuant to Section 364(c)(3)
of the Bankruptcy Code, upon all property of the Borrower and the
Guarantors (other than the property referred to in paragraph (e) below
that is subject to the valid and perfected Liens that presently secure
the Borrower's and Guarantors' pre-petition Indebtedness under the
Existing Agreements) that is subject to valid and perfected Liens in
existence on the Filing Date, junior to such valid and perfected
Liens; and
(e) with respect to the obligations of the Borrower and the
Guarantors hereunder, a perfected first priority priming Lien,
pursuant to Section 364(d)(1) of the Bankruptcy Code, upon all
property of the Borrower and the Guarantors (including, without
limitation, accounts receivable, inventory, equipment, intellectual
property and the capital stock of certain
2
<PAGE>
direct or indirect Subsidiaries of the Borrower other than Toy Biz)
that is subject to the existing Liens that presently secure the Borrower's
and Guarantors' pre-petition Indebtedness under the Existing Agreements
and any Liens granted after the Filing Date to provide adequate
protection in respect of the Existing Agreements, which Lien in favor
of the Agent and the Banks shall be senior in all respects to all of
such existing Liens and to any Liens granted after the Filing Date to
provide adequate protection in respect thereof.
All of the claims and the Liens granted hereunder in the Cases to the
Agent and the Banks shall be subject to the Carve-Out to the extent provided in
Section 2.22.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
SECTION 1.1 DEFINED TERMS.
As used in this Agreement, the following terms shall have the meanings
specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
"ABR Loan" shall mean any Loan bearing interest at a rate determined
by reference to the Alternate Base Rate in accordance with the provisions of
Section 2.
"Additional Credit" shall have the meaning given such term in Section
4.2(d) hereof.
"Adjusted LIBOR Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the quotient of (a) the LIBOR
Rate in effect for such Interest Period divided by (b) a percentage (expressed
as a decimal) equal to 100% minus Statutory Reserves. For purposes hereof, the
term "LIBOR Rate" shall mean the rate (rounded upwards, if necessary, to the
next 1/16 of 1%) at which dollar
3
<PAGE>
deposits approximately equal in principal amount to such Eurodollar Borrowing
and for a maturity comparable to such Interest Period are offered to the
principal London office of the Agent in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period.
"Affiliate" shall mean, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with such Person. For purposes of this definition, a Person (a
"Controlled Person") shall be deemed to be "controlled by" another Person (a
"Controlling Person") if the Controlling Person possesses, directly or
indirectly, power to direct or cause the direction of the management and
policies of the Controlled Person whether by contract or otherwise.
"Agent" shall have the meaning set forth in the Introduction.
"Agreement" shall mean this Revolving Credit and Guaranty Agreement,
as the same may from time to time be further amended, modified or supplemented.
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest
of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on
such day plus 1% and (c) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the Agent as its
prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective on the date such change is publicly
announced. "Base CD Rate" shall mean the sum of (a) the quotient of (i) the
Three-Month Secondary CD Rate divided by (ii) a percentage expressed as a
decimal equal to 100% minus Statutory Reserves and (b) the Assessment Rate.
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on
such day (or, if such day shall not be a Business Day, the next preceding
Business Day) by the Board through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if
4
<PAGE>
such rate shall not be so reported on such day or such next preceding Business
Day, the average of the secondary market quotations for three-month certifi
cates of deposit of major money center banks in New York City received at
approximately 10:00 a.m., New York City time, on such day (or, if such day
shall not be a Business Day, on the next preceding Business Day) by the Agent
from three New York City negotiable certificate of deposit dealers of
recognized standing selected by it. "Federal Funds Effective Rate" shall mean,
for any day, the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for the day of such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it. If for any reason the Agent shall have
determined (which determination shall be conclusive absent manifest error) that
it is unable to ascertain the Base CD Rate or the Federal Funds Effective Rate
or both for any reason, including the in ability or failure of the Agent to
obtain sufficient quotations in accordance with the terms hereof, the Alternate
Base Rate shall be determined without regard to clause (b) or (c), or both, of
the first sentence of this definition, as appropriate, until the circumstances
giving rise to such inability no longer exist. Any change in the Alternate Base
Rate due to a change in the Prime Rate, the Three-Month Secondary CD Rate or
the Federal Funds Effective Rate shall be effective on the effective date of
such change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate, respectively.
"Assessment Rate" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by the
Agent as the then current net annual assessment rate that will be employed in
determining amounts payable by the Agent to the Federal Deposit Insurance
Corporation (or any successor) for insurance by such Corporation (or any
successor) of time deposits made in dollars at the Agent's domestic offices.
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Bank and an Eligible Assignee, and accepted by the Agent,
substantially in the form of Exhibit E.
5
<PAGE>
"Bankruptcy Code" shall mean The Bankruptcy Reform Act of 1978, as
heretofore and hereafter amended, and codified as 11 U.S.C. Section 101 et seq.
"Bankruptcy Court" shall mean the United States Bankruptcy Court for
the District of Delaware or any other court having jurisdiction over the Cases
from time to time.
"Banks" shall have the meaning set forth in the Introduction.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrower" shall have the meaning set forth in the Introduction.
"Borrowing" shall mean the incurrence of Loans of a single Type made
from all the Banks on a single date and having, in the case of Eurodollar
Loans, a single Interest Period (with any ABR Loan made pursuant to Section
2.15 being considered a part of the related Borrowing of Eurodollar Loans).
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks in the State of New York are required or permitted to
close (and, for a Letter of Credit, other than a day on which the Fronting Bank
issuing such Letter of Credit is closed); provided, however, that when used in
connection with a Eurodollar Loan, the term "Business Day" shall also exclude
any day on which banks are not open for dealings in dollar deposits on the
London interbank market.
"Capital Expenditures" shall mean, for any period, the aggregate of
all expenditures (whether paid in cash and not theretofore accrued subsequent
to the date of this Agreement or accrued as liabilities during such period and
including that portion of Capitalized Leases which is capitalized on the
consolidated balance sheet of the Borrower and the Guarantors) net of cash
amounts received by the Borrower and the Guarantors from other Persons during
such period in reimbursement of Capital Expenditures made by the Borrower and
the Guarantors, excluding interest capitalized during construction, by the
Borrower and the Guarantors during such period that, in conformity with GAAP,
are
6
<PAGE>
required to be included in or reflected by the property, plant, equipment or
intangibles or similar fixed asset accounts reflected in the consolidated
balance sheet of the Borrower and the Guarantors (including equipment which is
purchased simultaneously with the trade-in of existing equipment owned by the
Borrower or any of the Guarantors to the extent of the gross amount of such
purchase price less the book value of the equipment being traded in at such
time), but excluding expenditures made in connection with the replacement or
restoration of assets, to the extent reimbursed or financed from insurance
proceeds paid on account of the loss of or the damage to the assets being
replaced or restored, or from awards of compensation arising from the taking by
condemnation or eminent domain of such assets being replaced. For the purposes
of this Agreement, the term "Capital Expenditures" shall also include
Investments incurred or made by the Borrower in connection with (i) the
development of software products by the division of the Borrower known as
Marvel Interactive, (ii) the development of a number of restaurants by Marvel
Mania, a joint venture in which Marvel Restaurant Venture Corp. is a general
partner, (iii) certain projects of the business segment of the Borrower and the
Guarantors known as Marvel Studios (including a non-Guarantor Subsidiary to be
formed to carry on a portion of the activities of such business segment) and
(iv) the purchase by the Borrower and certain of the Guarantors of displays and
other related expenditures in connection with the expansion of mass market
distribution channels for the comic book, trading card and sticker businesses
of the Borrower and the Guarantors.
"Capitalized Lease" shall mean, as applied to any Person, any lease of
property by such Person as lessee which would be capitalized on a balance
sheet of such Person prepared in accordance with GAAP.
"Carve-Out" shall have the meaning set forth in Section 2.22.
"Cases" shall mean the Chapter 11 Cases of the Borrower and each of
the Debtor Guarantors pending in the Bankruptcy Court.
"Cash Collateral Order" shall have the meaning set forth in Section
4.1(d).
"Chase" shall have the meaning set forth in the Introduction.
7
<PAGE>
"Closing Date" shall mean the date on which this Agreement has been
executed and the conditions precedent to the making of the initial Loans set
forth in Section 4.1 have been satisfied or waived, which date shall occur
promptly, but no later than 10 days, after the entry of the Interim Order.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall mean the Collateral under the Security and Pledge
Agreement.
"Commitment" shall mean, with respect to each Bank, the commitment of
each Bank hereunder in the amount set forth opposite its name on Annex A hereto
or as may subsequently be set forth in the Register from time to time, as the
same may be reduced from time to time pursuant to Sections 2.9 and 2.12.
"Commitment Fee" shall have the meaning set forth in Section 2.19.
"Commitment Letter" shall mean that certain Commitment Letter dated
December 23, 1996 among the Agent, Chase Securities Inc. and the Borrower.
"Commitment Percentage" shall mean at any time, with respect to each
Bank, the percentage obtained by dividing its Commitment at such time by the
Total Commitment at such time.
"Consummation Date" shall mean the date of the substantial
consummation (as defined in Section 1101 of the Bankruptcy Code and including
the effective date of a Reorganization Plan) of a Reorganization Plan of the
Borrower or any of the Guarantors which is confirmed pursuant to an order of
the Bankruptcy Court.
"Disclosure Statement" shall have the meaning given such term in
Section 3.4.
"Dollars" and "$" shall mean lawful money of the United States of
America.
"EBITDA" shall mean, for any period, all as determined in accordance
with GAAP, the consolidated net income (or net loss) of
8
<PAGE>
the Borrower and the Guarantors for such period, plus (a) the sum of (i)
depreciation expense, (ii) amortization expense, (iii) other non-cash charges,
(iv) provision for LIFO adjustment for inventory valuation, (v) net total
Federal, state and local income tax expense, (vi) gross interest expense for
such period less gross interest income for such period, (vii) extraordinary
losses, (viii) any non-recurring charge or restructuring charge which in
accordance with GAAP is excluded from operating income, (ix) the cumulative
effect of any change in accounting principles and (x) "Chapter 11 expenses" (or
"administrative costs reflecting Chapter 11 expenses") as shown on the
Borrower's consolidated statement of income for such period less (b)
extraordinary gains plus or minus (c) the amount of cash received or expended
(excluding up to $1,500,000 expended in connection with the disposition or
closure of The Asher Candy Company and up to $1,500,000 expended in connection
with the disposition or closure of Heroes World Distribution, Inc.) in such
period in respect of any amount which, under clause (viii) above, was taken
into account in determining EBITDA for such or any prior period.
"Eligible Assignee" shall mean (i) a commercial bank having total
assets in excess of $1,000,000,000; (ii) a finance company, insurance company
or other financial institution or fund acceptable to the Agent which in the
ordinary course of business extends credit of the type evidenced by the Notes
and has total assets in excess of $200,000,000 and whose becoming an assignee
would not constitute a prohibited transaction under Section 4975 of ERISA; and
(iii) any other financial institution satisfactory to the Borrower and the
Agent.
"Environmental Lien" shall mean a Lien in favor of any Governmental
Authority for (i) any liability under federal or state environmental laws or
regulations, or (ii) damages arising from or costs incurred by such
Governmental Authority in response to a release or threatened release of a
hazardous or toxic waste, substance or constituent, or other substance into the
environment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) which is a member of a group of which the
9
<PAGE>
Borrower is a member and which is under common control within the meaning of
Section 414(b) or (c) of the Code and the regulations promulgated and rulings
issued thereunder.
"Eurocurrency Liabilities" shall have the meaning assigned thereto in
Regulation D issued by the Board, as in effect from time to time.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Loan bearing interest at a rate
determined by reference to the Adjusted LIBOR Rate in accordance with the
provisions of Section 2.
"Event of Default" shall have the meaning given such term in Section
7.
"Existing Agreements" shall mean the agreements listed on Schedule 1.1
hereto, the notes delivered pursuant thereto, and all of the agreements
granting security interests and liens in property and assets of the Borrower
and the Guarantors to the Existing Lenders, including without limitation, the
security agreements, mortgages and leasehold mortgages listed on Schedule 1.1
hereto, each of which documents was executed and delivered (to the extent party
thereto) by the Borrower and the Guarantors prior to the Filing Date, as each
may have been amended or modified from time to time.
"Existing Lenders" shall mean, collectively, those certain lenders to
the Borrower and the Guarantors (to the extent party thereto) under the
Existing Agreements, together with any successors or assigns thereof.
"Fees" shall collectively mean the Commitment Fees, Letter of Credit
Fees and other fees referred to in Section 2.18.
"Filing Date" shall mean December 27, 1996.
"Final Order" shall have the meaning given such term in Section
4.2(d).
10
<PAGE>
"Financial Officer" shall mean the Chief Financial Officer, Vice President
Finance or the Treasurer of the Borrower.
"Fronting Bank" shall mean Chase or such other Bank (which other Bank
shall be reasonably satisfactory to the Borrower) as may agree with Chase to
act in such capacity.
"GAAP" shall mean generally accepted accounting principles applied on
a basis consistent with those used in preparing the financial statements
referred to in Section 3.4.
"Governmental Authority" shall mean any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality or any court, in each case whether of the United States or
foreign.
"Guarantor" shall have the meaning set forth in the Introduction.
"Indebtedness" shall mean, at any time and with respect to any Person,
(i) all indebtedness of such Person for borrowed money, (ii) all indebtedness
of such Person for the deferred purchase price of property or services (other
than property, including inventory, and services purchased, and expense
accruals and deferred compensation items arising, in the ordinary course of
business), (iii) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments (other than performance, surety and
appeal bonds arising in the ordinary course of business), (iv) all indebtedness
of such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (v)
all obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, to the extent required to be
so recorded, (vi) all reimbursement, payment or similar obligations of such
Person, contingent or otherwise, under acceptance, letter of credit or similar
facilities, (vii) all Indebtedness referred to in clauses (i) through (vi)
above guaranteed directly or indirectly by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement (A) to pay or
purchase such Indebted ness or to advance or supply funds for the
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payment or purchase of such Indebtedness, (B) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such In debtedness or to
assure the holder of such Indebtedness against loss in respect of such
Indebtedness, (C) to supply funds to or in any other manner invest in the
debtor (including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered) or (D)
otherwise to assure a creditor against loss in respect of such Indebtedness,
and (viii) all Indebtedness referred to in clauses (i) through (vii) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Insufficiency" shall mean, with respect to any Plan, the amount, if
any, of its unfunded benefit liabilities within the meaning of Section
4001(a)(18) of ERISA.
"Interim Order" shall have the meaning given such term in Section
4.1(c).
"Interest Expense" shall mean interest expense as determined in
accordance with GAAP.
"Interest Payment Date" shall mean (i) as to any Eurodollar Loan, the
last day of such Interest Period, and (ii) as to all ABR Loans, the last
calendar day of each month and the date on which any ABR Loans are refinanced
with Eurodollar Loans pursuant to Section 2.11.
"Interest Period" shall mean, as to any Borrowing of Eurodollar
Loans, the period commencing on the date of such Borrowing (including as a
result of a refinancing of ABR Loans) or on the last day of the preceding
Interest Period applicable to such Borrowing and ending on the numerically
corresponding day (or if there is no corresponding day, the last day) in the
calendar month that is 1 month thereafter, as the Borrower may elect in the
related notice delivered pursuant to Sections 2.5(b) or 2.11; provided,
however, that (i) if any Interest Period would end on a day which shall not be
a Business Day, such Interest Period shall
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be extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day, and (ii) no Interest
Period shall end later than the Termination Date.
"Investments" shall have the meaning given such term in Section 6.10.
"Letter of Credit" shall mean any irrevocable letter of credit issued
pursuant to Section 2.2, which letter of credit shall be (i) a standby or
documentary letter of credit, (ii) issued for such purposes for which the
Borrower or any Guarantor has historically obtained letters of credit, or for
such other purposes as are reasonably acceptable to the Agent, (iii)
denominated in Dollars and (iv) otherwise in such form as may be reasonably
approved from time to time by the Agent and the applicable Fronting Bank.
"Letter of Credit Account" shall mean the account established by the
Borrower under the sole and exclusive control of the Agent maintained at the
office of the Agent at 270 Park Avenue, New York, New York 10017 designated as
the "Marvel Entertainment Group, Inc. Letter of Credit Account" that shall be
used solely for the purposes set forth in Sections 2.2(b) and 2.12.
"Letter of Credit Fees" shall mean the fees payable in respect of
Letters of Credit pursuant to Section 2.20.
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate undrawn stated amount of all Letters of Credit then
outstanding plus (ii) all amounts theretofore drawn under Letters of Credit and
not then reimbursed.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind whatsoever (including any conditional
sale or other title retention agreement or any lease in the nature thereof).
"Loan" shall have the meaning given such term in Section 2.1.
"Loan Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Security and Pledge Agreement, and any
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other instrument or agreement executed and delivered in connection herewith.
"Maturity Date" shall mean April 30, 1997 provided, that if on April
30, 1996 there shall not have occurred and be continuing an Event of Default or
an event which upon notice or lapse of time or both would constitute an Event
of Default, such Maturity Date may be extended, at the Borrower's sole option
by written notice to the Agent delivered no later than April 25, 1997, to June
30, 1997.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any of
the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" shall mean a Single Employer Plan, which (i)
is maintained for employees of the Borrower or an ERISA Affiliate and at least
one Person other than the Borrower and its ERISA Affiliates or (ii) was so
maintained and in respect of which the Borrower or an ERISA Affiliate could
have liability under Section 4064 or 4069 of ERISA in the event such Plan has
been or were to be terminated.
"Notes" shall mean the promissory notes of the Borrower, substantially
in the form of Exhibit A hereto, each payable to the order of a Bank,
evidencing Loans.
"Obligations" shall mean (a) the due and punctual payment of principal
of and interest on the Loans and the Notes and the reimbursement of all amounts
drawn under Letters of Credit, and (b) the due and punctual payment of the Fees
and all other present and future, fixed or contingent, monetary obligations of
the Borrower and the Guarantors to the Banks and the Agent under the Loan
Documents.
"Orders" shall mean the Interim Order and the Final Order of the
Bankruptcy Court referred to in Sections 4.1(c) and 4.2(d).
"Other Taxes" shall have the meaning given such term in Section 2.17.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor agency or entity performing substantially the same functions.
"Pension Plan" shall mean a defined benefit pension or retirement plan
which meets and is subject to the requirements of Section 401(a) of the Code.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America (or by any agency thereof to the extent such obligations are backed by
the full faith and credit of the United States of America), in each case
maturing within twelve months from the date of acquisition thereof;
(b) without limiting the provisions of paragraph (d) below,
investments in commercial paper maturing within six months from the date of
acquisition thereof and having, at such date of acquisition, a rating of at
least "A" or the equivalent thereof from Standard & Poor's Corporation or of at
least "A2" or the equivalent thereof from Moody's Investors Service, Inc.;
(c) investments in certificates of deposit, banker's acceptances
and time deposits (including Eurodollar time deposits) maturing within six
months from the date of acquisition thereof issued or guaranteed by or placed
with (i) any domestic office of the Agent or the bank with whom the Borrower
and the Guarantors maintain their cash management system, provided, that if
such bank is not a Bank hereunder, such bank shall have entered into an
agreement with the Agent pursuant to which such bank shall have waived all
rights of setoff and confirmed that such bank does not have, nor shall it
claim, a security interest therein or (ii) any domestic office of any other
commercial bank of recognized standing organized under the laws of the United
States of America or any State thereof that has a combined capital and surplus
and undivided profits of not less than $250,000,000 and is the principal
banking Subsidiary of a bank holding company having a long-term unsecured debt
rating of at least "A" or the equivalent thereof from Standard & Poor's
Corporation or at least "A2" or the equivalent thereof from Moody's Investors
Service, Inc.;
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(d) investments in commercial paper maturing within six months
from the date of acquisition thereof and issued by (i) the holding company of
the Agent or (ii) the holding company of any other commercial bank of
recognized standing organized under the laws of the United States of America or
any State thereof that has (A) a combined capital and surplus in excess of
$250,000,000 and (B) commercial paper rated at least "A" or the equivalent
thereof from Standard & Poor's Corporation or of at least "A2" or the
equivalent thereof from Moody's Investors Service, Inc.;
(e) investments in repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (a)
above entered into with any office of a bank or trust company meeting the
qualifications specified in clause (c) above;
(f) investments in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(a) through (e) above;
(g) to the extent owned on the Filing Date, investments in the
capital stock of any direct or indirect Subsidiary of the Borrower, investments
in the capital stock of Dr. Torrents, S.A., Fleer Limited and Fleer Espanol and
investments in the capital stock of Toy Biz; and
(h) an investment in the capital stock of the Subsidiary, if any,
to be formed after the Filing Date to carry on a portion of the activities of
the business segment of the Borrower and the Guarantors known as Marvel
Studios, which Subsidiary shall not be a Guarantor, provided that the amount of
such investment shall be limited to $1,000,000.
"Permitted Liens" shall mean (i) Liens imposed by law (other than
Environmental Liens and any Lien imposed under ERISA) for taxes, assessments or
charges of any Governmental Authority for claims not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves or other appropriate provisions are being maintained in
accordance with GAAP; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than Environmental
Liens and any Lien imposed under ERISA) imposed by law created in the ordinary
course of business for
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amounts not yet due or which are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves or other appropriate
provisions are being maintained in accordance with GAAP; (iii) Liens (other
than any Lien imposed under ERISA) incurred or deposits made in the ordinary
course of business (including, without limitation, surety bonds and appeal
bonds) in connection with workers' compensation, unemployment insurance and
other types of social security benefits or to secure the perfor mance of
tenders, bids, leases, contracts (other than for the repayment of
Indebtedness), statutory obligations and other similar obligations or arising
as a result of progress payments under government contracts; (iv) easements
(including, without limitation, reciprocal easement agreements and utility
agreements), rights-of-way, covenants, consents, reservations, encroachments,
variations and zoning and other restrictions, charges or encumbrances (whether
or not recorded), which do not interfere materially with the ordinary conduct
of the business of the Borrower or any Guarantor, as the case may be, and which
do not materially detract from the value of the property to which they attach
or materially impair the use thereof to the Borrower or any Guarantor, as the
case may be; (v) purchase money Liens upon or in any property acquired or held
in the ordinary course of business to secure the purchase price of such
property or to secure Indebted ness permitted by Section 6.3(iii) solely for
the purpose of financing the acquisition of such property and Capitalized
Leases permitted by Section 6.3(iv) and true leases on account of which
financing statements have been filed; and (vi) extensions, renewals or
replacements of any Lien referred to in paragraphs (i) through (v) above,
provided that the principal amount of the obligation secured thereby is not
increased and that any such extension, renewal or replacement is limited to the
property originally encumbered thereby.
"Person" shall mean any natural person, corporation, division of a
corporation, partnership, trust, joint venture, association, company, estate,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" shall mean a Single Employer Plan or a Multiemployer Plan.
"Prepayment Date" shall mean thirty (30) days after the entry of the
Interim Order by the Bankruptcy Court if the Final Order
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has not been entered by the Bankruptcy Court prior to the expiration of such
thirty (30) day period.
"Pre-Petition Payment" shall mean a payment (by way of adequate
protection or otherwise) of principal or interest or otherwise on account of
any pre-petition Indebtedness or payables, other than in respect of trade
payables arising prior to the Petition Date to the extent permitted by the
Bankruptcy Court.
"Proposed Plan" shall have the meaning set forth in Section 4.1(f).
"Register" shall have the meaning set forth in Section 10.3(d).
"Reorganization Plan" shall mean a plan of reorganization in any of
the Cases.
"Required Banks" shall mean, at any time, Banks holding Loans
representing in excess of 50% of the aggregate principal amount of such Loans
outstanding or, if no such Loans are outstanding, Banks having Commitments
representing in excess of 50% of the Total Commitment.
"Security and Pledge Agreement" shall have the meaning set forth in
Section 4.1(e).
"Single Employer Plan" shall mean a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (i) is maintained for employees of the
Borrower or an ERISA Affiliate or (ii) was so maintained and in respect of
which the Borrower could have liability under Section 4069 of ERISA in the
event such Plan has been or were to be terminated.
"Statutory Reserves" shall mean on any date the percentage (expressed
as a decimal) established by the Board and any other banking authority which is
(i) for purposes of the definition of Base CD Rate, the then stated maximum
rate of all reserves (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for a member bank of the
Federal Reserve System in New York City, for new three month negotiable
nonpersonal time deposits in dollars of $100,000 or more or (ii) for purposes
of the definition of Adjusted LIBOR
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Rate, the then stated maximum rate for all reserves (including but not limited
to any emergency, supplemental or other marginal reserve requirements)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency Liabilities (or any successor category of liabilities under
Regulation D issued by the Board, as in effect from time to time). Such reserve
percentages shall include, without limitation, those imposed pursuant to said
Regu lation. The Statutory Reserves shall be adjusted automatically on and as
of the effective date of any change in such percentage.
"Subsidiary" shall mean, with respect to any Person (herein referred
to as the "parent"), any corporation, association or other business entity
(whether now existing or hereafter organized) of which at least a majority of
the securities or other ownership interests having ordinary voting power for
the election of directors is, at the time as of which any determination is
being made, owned or controlled by the parent or one or more subsidiaries of
the parent or by the parent and one or more subsidiaries of the parent.
"Super-majority Banks" shall have the meaning given such term in
Section 10.10(b).
"Superpriority Claim" shall mean a claim against the Borrower and any
Guarantor in any of the Cases which is an administrative expense claim having
priority over any or all administrative expenses of the kind specified in
Sections 503(b) or 507(b) of the Bankruptcy Code.
"Taxes" shall have the meaning given such term in Section 2.17.
"Termination Date" shall mean the earliest to occur of (i) the
Prepayment Date, (ii) the Maturity Date, (iii) the Consummation Date and (iv)
the acceleration of the Loans and the termination of the Total Commitment in
accordance with the terms hereof.
"Termination Event" shall mean (i) a "reportable event", as such term
is described in Section 4043 of ERISA and the regulations issued thereunder
(other than a "reportable event" not subject to the provision for 30-day notice
to the PBGC under
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Section 4043 of ERISA or such regulations) or an event described in Section
4068 of ERISA excluding events described in Section 4043(c)(9) of ERISA or 29
CFR ss.ss.2615.21 or 2615.23 and excluding events which would not be reasonably
likely (as reasonably determined by the Agent) to have a material adverse
effect on the financial condition, operations, business, properties or assets
of the Borrower and the Guarantors taken as a whole, or (ii) the withdrawal of
the Borrower or any ERISA Affiliate from a Multiple Employer Plan during a plan
year in which it was a "substantial employer", as such term is defined in
Section 4001(c) of ERISA, or the incurrence of liability by the Borrower or any
ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple
Employer Plan, or (iii) providing notice of intent to terminate a Plan pursuant
to Section 4041(c) of ERISA or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (iv) the institution of proceedings
to terminate a Plan by the PBGC under Section 4042 of ERISA, or (v) any other
event or condition (other than the commencement of the Cases and the failure to
have made any contribution accrued as of the Filing Date but not paid) which
would reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Plan, or the imposition of any liability under Title IV of ERISA (other than
for the payment of premiums to the PBGC).
"Total Commitment" shall mean, at any time, the sum of the Commitments
at such time.
"Toy Biz" shall mean Toy Biz, Inc., a Delaware corporation.
"Transferee" shall have the meaning given such term in Section 2.17.
"Type" when used in respect of any Loan or Borrowing shall refer to
the rate of interest by reference to which interest on such Loan or on the
Loans comprising such Borrowing is determined. For purposes hereof, "Rate"
shall mean the Adjusted LIBOR Rate and the Alternate Base Rate.
"Unused Total Commitment" shall mean, at any time, (i) the Total
Commitment less (ii) the sum of (x) the aggregate outstanding principal amount
of all Loans and (y) the aggregate Letter of Credit Outstandings.
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"Withdrawal Liability" shall have the meaning given such term under
Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. TERMS GENERALLY. The definitions in Section 1.1 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. All references herein to Sections,
Exhibits and Schedules shall be deemed references to Sections of, and Exhibits
and Schedules to, this Agreement unless the context shall otherwise require.
Except as otherwise expressly provided herein, all terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that for purposes of determining compliance
with any covenant set forth in Section 6, such terms shall be construed in
accordance with GAAP as in effect on the date of this Agreement applied on a
basis consistent with the application used in the Borrower's audited financial
statements referred to in Section 3.4.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
SECTION 2.1. COMMITMENT OF THE BANKS.
(a) Each Bank severally and not jointly with the other Banks agrees,
upon the terms and subject to the conditions herein set forth (including,
without limitation, the provisions of Section 2.27), to make revolving credit
loans (each a "Loan" and collectively, the "Loans") to the Borrower at any time
and from time to time during the period commencing on the date hereof and
ending on the Termination Date (or the earlier date of termination of the Total
Commitment) in an aggregate principal amount not to exceed, when added to such
Bank's Commitment Percentage of the then aggregate Letter of Credit
Outstandings (in excess of the amount of cash then held in the Letter of Credit
Account pursuant to Section 2.2(b)), the Commitment of such Bank, which Loans
may be repaid and reborrowed in accordance with the provisions of this
Agreement. At no time shall the sum of the then outstanding aggregate principal
amount of the Loans plus the then aggregate Letter of Credit Outstandings
exceed the Total Commitment of
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$100,000,000, as the same may be reduced from time to time pursuant to
Sections 2.9 or 2.12, as the case may be.
(b) Each Borrowing shall be made by the Banks pro rata in
accordance with their respective Commitments; provided, however, that the
failure of any Bank to make any Loan shall not in itself relieve the other
Banks of their obligations to lend.
SECTION 2.2. LETTERS OF CREDIT
(a) Upon the terms and subject to the conditions herein set forth,
the Borrower may request a Fronting Bank, at any time and from time to time
after the date hereof and prior to the Termination Date, to issue, and subject
to the terms and conditions contained herein, such Fronting Bank shall issue,
for the account of the Borrower or a Guarantor one or more Letters of Credit,
provided that no Letter of Credit shall be issued if after giving effect to
such issuance (i) the aggregate Letter of Credit Outstandings shall exceed
$25,000,000 or (ii) the aggregate Letter of Credit Outstandings, when added to
the aggregate outstanding principal amount of the Loans, would exceed the Total
Commitment and, provided further that no Letter of Credit shall be issued if
the Fronting Bank shall have received notice from the Agent or the Required
Banks that the conditions to such issuance have not been met.
(b) No Letter of Credit shall expire later than 60 days after the
Maturity Date, provided that if any Letter of Credit shall be outstanding on
the Termination Date, the Borrower shall, at or prior to the Termination Date,
except as the Agent may otherwise agree in writing, (i) cause all Letters of
Credit which expire after the Termination Date to be returned to the Fronting
Bank undrawn and marked "cancelled" or (ii) if the Borrower is unable to do so
in whole or in part, either (x) provide a "back-to-back" letter of credit to
one or more Fronting Banks in a form satis factory to such Fronting Bank and
the Agent (in their sole discretion), issued by a bank satisfactory to such
Fronting Bank and the Agent (in their sole discretion), in an amount equal to
105% of the then undrawn stated amount of all outstanding Letters of Credit
issued by such Fronting Banks and/or (y) deposit cash in the Letter of Credit
Account in an amount equal to 105% of the then undrawn stated amount of all
outstanding Letters of Credit as
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collateral security for the Borrower's reimbursement obligations in connection
therewith, such cash to be remitted to the Borrower upon the expiration,
cancellation or other termination or satisfaction of such reimbursement
obligations.
(c) The Borrower shall pay to each Fronting Bank, in addition to
such other fees and charges as are specifically provided for in Section 2.20
hereof, such fees and charges in connection with the issuance and processing of
the Letters of Credit issued by such Fronting Bank as are customarily imposed
by such Fronting Bank from time to time in connection with letter of credit
transactions.
(d) Drafts drawn under each Letter of Credit shall be reimbursed by
the Borrower in Dollars not later than the first Business Day following the
date of draw and shall bear interest from the date of draw until the first
Business Day following the date of draw at a rate per annum equal to the
Alternate Base Rate plus 1-1/2% and thereafter until reimbursed in full at a
rate per annum equal to the Alternate Base Rate plus 3-1/2% (computed on the
basis of the actual number of days elapsed over any year of 360 days). The
Borrower shall effect such reimbursement (x) if such draw occurs prior to the
Termination Date (or the earlier date of termination of the Total Commitment),
in cash or through a
Borrowing without the satisfaction of the conditions precedent set forth in
Section 4.2 or (y) if such draw occurs on or after the Termination Date (or the
earlier date of termination of the Total Commitment), in cash. Each Bank agrees
to make the Loans described in clause (x) of the preceding sentence
notwithstanding a failure to satisfy the applicable lending conditions thereto
or the provisions of Sections 2.1 or 2.27 or the occurrence of the Termination
Date.
(e) Immediately upon the issuance of any Letter of Credit by any
Fronting Bank, such Fronting Bank shall be deemed to have sold to each Bank
other than such Fronting Bank and each such other Bank shall be deemed
unconditionally and irrevocably to have purchased from such Fronting Bank,
without recourse or warranty, an undivided interest and participation, to the
extent of such Bank's Commitment Percentage, in such Letter of Credit, each
drawing thereunder and the obligations of the Borrower and the Guarantors under
this Agreement with respect thereto. Upon any change in the Commitments
pursuant to Section 10.3, it is hereby
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agreed that with respect to all Letter of Credit Outstandings, there shall be
an automatic adjustment to the participations hereby created to reflect the new
Commitment Percentages of the assigning and assignee Banks. Any action taken
or omitted by a Fronting Bank under or in connection with a Letter of Credit,
if taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for such Fronting Bank any resulting liability to any other
Bank.
(f) In the event that a Fronting Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to such Fronting Bank pursuant to this Section, the Fronting Bank shall
promptly notify the Agent, which shall promptly notify each Bank of such
failure, and each Bank shall promptly and unconditionally pay to the Agent for
the account of the Fronting Bank the amount of such Bank's Commitment
Percentage of such unreimbursed payment in Dollars and in same day funds. If
the Fronting Bank so notifies the Agent, and the Agent so notifies the Banks
prior to 11:00 a.m. (New York City time) on any Business Day, such Banks shall
make available to the Fronting Bank such Bank's Commitment Percentage of the
amount of such payment on such Business Day in same day funds. If and to the
extent such Bank shall not have so made its Commitment Percentage of the amount
of such payment available to the Fronting Bank, such Bank agrees to pay to such
Fronting Bank, forthwith on demand such amount, together with interest thereon,
for each day from such date until the date such amount is paid to the Agent for
the account of such Fronting Bank at the Federal Funds Effective Rate. The
failure of any Bank to make available to the Fronting Bank its Commitment
Percentage of any payment under any Letter of Credit shall not relieve any
other Bank of its obligation hereunder to make available to the Fronting Bank
its Commitment Percentage of any payment under any Letter of Credit on the date
required, as specified above, but no Bank shall be responsible for the failure
of any other Bank to make available to such Fronting Bank such other Bank's
Commitment Percentage of any such payment. Whenever a Fronting Bank receives a
payment of a reimbursement obligation as to which it has received any payments
from the Banks pursuant to this paragraph, such Fronting Bank shall pay to each
Bank which has paid its Commitment Percentage thereof, in Dollars and in same
day funds, an amount equal to such Bank's Commitment Percentage thereof.
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SECTION 2.3. ISSUANCE. Whenever the Borrower desires a Fronting
Bank to issue a Letter of Credit, it shall give to such Fronting Bank and the
Agent at least two Business Days' prior written (including telegraphic, telex,
facsimile or cable communication) notice (or such shorter period as may be
agreed upon by the Agent, the Borrower and the Fronting Bank) specifying the
date on which the proposed Letter of Credit is to be issued (which shall be
a Business Day), the stated amount of the Letter of Credit so requested, the
expiration date of such Letter of Credit and the name and address of the
beneficiary thereof.
SECTION 2.4. NATURE OF LETTER OF CREDIT OBLIGATIONS ABSOLUTE.
The obligations of the Borrower to reimburse the Banks for
drawings made under any Letter of Credit shall be unconditional and irrevocable
and shall be paid strictly in accordance with the terms of this Agreement under
all circumstances, including, without limitation (it being understood that any
such payment by the Borrower shall be without prejudice to, and shall not
constitute a waiver of, any rights the Borrower might have or might acquire as
a result of the payment by the Fronting Bank of any draft or the reimbursement
by the Borrower thereof): (i) any lack of validity or enforceability of any
Letter of Credit; (ii) the existence of any claim, setoff, defense or other
right which the Borrower or any Guarantor may have at any time against a
beneficiary of any Letter of Credit or against any of the Banks, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction; (iii) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; (iv) payment by a Fronting Bank of any Letter of
Credit against presentation of a demand, draft or certificate or other document
which does not comply with the terms of such Letter of Credit; (v) any other
circumstance or happening whatsoever, which is similar to any of the foregoing;
or (vi) the fact that any Event of Default shall have occurred and be
continuing.
SECTION 2.5. MAKING OF LOANS.
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(a) Except as contemplated by Section 2.8, Loans shall
be either ABR Loans or Eurodollar Loans as the Borrower may request subject
to and in accordance with this Section, provided that all loans made pursuant
to the same Borrowing shall, unless otherwise specifically provided herein,
be Loans of the same Type. Each Bank may fulfill its Commitment with respect
to any Eurodollar Loan or ABR Loan by causing any lending office of such
Bank to make such Loan; provided that any such use of a lending office
shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of the applicable Note. Each Bank shall,
subject to its overall policy considerations, use reasonable
efforts (but shall not be obligated) to select a lending office
which will not result in the payment of increased costs by the
Borrower pursuant to Section 2.14. Subject to the other provisions
of this Section and the provisions of Section 2.11, Borrowings of
Loans of more than one Type may be incurred at the same time,
provided that no more than five (5) Borrowings of Eurodollar Loans
may be outstanding at any time.
(b) The Borrower shall give the Agent prior notice of
each Borrowing hereunder of at least three Business Days for Eurodollar Loans
and one Business Day for ABR Loans; such notice shall be irrevocable and shall
specify the amount of the proposed Borrowing (which shall not be less than
$5,000,000 in the case of Eurodollar Loans and $1,000,000 in the case of ABR
Loans) and the date thereof (which shall be a Business Day) and shall contain
disbursement instructions. Such notice, to be effective, must be received by
the Agent not later than 12:00 noon, New York City time, on the third Business
Day in the case of Eurodollar Loans and the first Business Day in the case of
ABR Loans, preceding the date on which such Borrowing is to be made except as
provided in the last sentence of this Section 2.5(b). Such notice shall specify
whether the Borrowing then being requested is to be a Borrowing of ABR Loans or
Eurodollar Loans. If no election is made as to the Type of Loan, such notice
shall be deemed a request for Borrowing of ABR Loans. The Agent shall promptly
notify each Bank of its proportionate share of such Borrowing, the date of such
Borrowing, the Type of Borrowing or Loans being requested and the Interest
Period or Interest Periods applicable thereto, as appropriate. On the borrowing
date specified in such notice, each Bank shall make its share of the Borrowing
available at the office of the Agent at 270 Park Avenue, New York, New York
10017, no later than 12:00 noon, New York City time, in immediately
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available funds. Upon receipt of the funds made available by the Banks to
fund any borrowing hereunder, the Agent shall disburse such funds in the manner
specified in the notice of borrowing delivered by the Borrower and shall use
reasonable efforts to make the funds so received from the Banks available to
the Borrower no later than 2:00 p.m. New York City time (other than as provided
in the following sentence). With respect to ABR Loans of $10,000,000 or less,
the Banks shall make such Borrowings available to the Borrower by 4:00 p.m.,
New York City time, on the same Business Day that the Borrower gives notice to
the Agent of such Borrowing by 12:00 noon, New York City time.
SECTION 2.6. NOTES; REPAYMENT OF LOANS. The Loans made by each Bank
shall be evidenced by a Note, duly executed on behalf of the Borrower, dated
the Closing Date or the date of the effectiveness of the applicable Assignment
and Acceptance, as the case may be, in substantially the form attached hereto
as Exhibit A, payable to the order of such Bank in an aggregate principal
amount equal to such Bank's Commitment. The outstanding principal balance of
all of the Loans, as evidenced by such Notes, shall be payable on the
Termination Date. Each Note shall bear interest from the date thereof on the
outstanding principal balance thereof as set forth in Section 2.7. Each Bank
shall, and is hereby authorized by the Borrower to, endorse on the schedule
attached to each Note delivered to such Bank (or on a continuation of such
schedule attached to such Note and made a part thereof), or otherwise to record
in such Bank's internal records, an appropriate notation evidencing the date
and amount of each Loan from such Bank, each payment and prepayment of
principal of any such Loan, each payment of interest on any such Loan and the
other information provided for on such schedule; provided, however, that the
failure of any Bank to make such a notation or any error therein shall not
affect the obligation of the Borrower to repay the Loans made by such Bank in
accordance with the terms of this Agreement and the applicable Notes.
SECTION 2.7. INTEREST ON LOANS.
(a) Subject to the provisions of Section 2.8, each ABR
Loan shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) at a rate per annum equal to the Alternate
Base Rate plus 1-1/2%.
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(b) Subject to the provisions of Section 2.8, each
Eurodollar Loan shall bear interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) at a rate per annum equal, during each
Interest Period applicable thereto, to the Adjusted LIBOR Rate for such
Interest Period in effect for such Borrowing plus 2-1/2%.
(c) Accrued interest on all Loans shall be payable in
arrears on each Interest Payment Date applicable thereto, at maturity (whether
by acceleration or otherwise), after such maturity on demand and (with respect
to Eurodollar Loans) upon any repayment or prepayment thereof (on the amount
prepaid).
SECTION 2.8. DEFAULT INTEREST. If the Borrower or any Guarantor, as
the case may be, shall default in the payment of the principal of or interest
on any Loan or in the payment of any other amount becoming due hereunder
(including, without limitation, the reimbursement pursuant to Section 2.2(d) of
any draft drawn under a Letter of Credit), whether at stated maturity, by
acceleration or otherwise, the Borrower or such Guarantor, as the case may be,
shall on demand from time to time pay interest, to the extent permitted by law,
on such defaulted amount up to (but not including) the date of actual payment
(after as well as before judgment) at a rate per annum (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to (x) in
the case of Borrowings consisting of Eurodollar Loans, the Adjusted LIBOR Rate
in effect for such Borrowing plus 4-1/2% and (y) in the case of all other
amounts, the Alternate Base Rate plus 3-1/2%.
SECTION 2.9. OPTIONAL TERMINATION OR REDUCTION OF COMMITMENT. Upon
at least two Business Days' prior written notice to the Agent, the Borrower may
at any time in whole permanently terminate, or from time to time in part
permanently reduce, the Unused Total Commitment. Each such reduction of the
Commitments shall be in the principal amount of $5,000,000 or any integral
multiple thereof. Simultaneously with each reduction or termination of the
Commitment, the Borrower shall pay to the Agent for the account of each Bank
the Commitment Fee accrued on the amount of the Commitment of such Bank so
terminated or reduced through the date thereof. Any reduction of the Total
Commitment pursuant
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to this Section shall be applied pro rata to reduce the Commitment of each Bank.
SECTION 2.10. ALTERNATE RATE OF INTEREST. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of any
Interest Period for a Eurodollar Loan, the Agent shall have determined (which
determination shall be con clusive and binding upon the Borrower absent
manifest error) that reasonable means do not exist for ascertaining the
applicable Adjusted LIBOR Rate, the Agent shall, as soon as practicable
thereafter, give written or telegraphic notice of such determination to the
Borrower and the Banks, and any request by the Borrower for a Borrowing of
Eurodollar Loans (including pursuant to a refinancing with Eurodollar Loans)
pursuant to Section 2.5 or 2.11 shall be deemed a request for a Borrowing of
ABR Loans. After such notice shall have been given and until the circumstances
giving rise to such notice no longer exist, each request for a Borrowing of
Eurodollar Loans shall be deemed to be a request for a Borrowing of ABR Loans.
SECTION 2.11. REFINANCING OF LOANS. The Borrower shall have the
right, at any time, on three Business Days' prior irrevocable notice to the
Agent (which notice, to be effective, must be received by the Agent not later
than 12:00 noon, New York City time, on the third Business Day preceding the
date of any refinancing), (x) to refinance (without the satisfaction of the
conditions set forth in Section 4 as a condition to such refinancing) any
outstanding Borrowing or Borrowings of Loans of one Type (or a portion thereof)
with a Borrowing of Loans of the other Type or (y) to continue an outstanding
Borrowing of Eurodollar Loans for an additional Interest Period, subject to the
following:
(a) as a condition to the refinancing of ABR Loans with
Eurodollar Loans and to the continuation of Eurodollar Loans for an
additional Interest Period, no Event of Default shall have occurred
and be continuing at the time of such refinancing;
(b) if less than a full Borrowing of Loans shall be
refinanced, such refinancing shall be made pro rata among the Banks
in accordance with the respective principal amounts of
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the Loans comprising such Borrowing held by the Banks
immediately prior to such refinancing;
(c) the aggregate principal amount of Loans being
refinanced shall be at least $1,000,000, provided that no partial
refinancing of a Borrowing of Eurodollar Loans shall result in the
Eurodollar Loans remaining outstanding pursuant to such Borrowing
being less than $5,000,000 in aggregate principal amount;
(d) each Bank shall effect each refinancing by applying
the proceeds of its new Eurodollar Loan or ABR Loan, as the case
may be, to its Loan being refinanced;
(e) the Interest Period with respect to a Borrowing of
Eurodollar Loans effected by a refinancing or in respect to the
Borrowing of Eurodollar Loans being continued as Eurodollar Loans
shall commence on the date of refinancing or the expiration of the
current Interest Period applicable to such continuing Borrowing, as
the case may be; and
(f) a Borrowing of Eurodollar Loans may be refinanced
only on the last day of an Interest Period applicable thereto.
In the event that the Borrower shall not give notice to refinance any Borrowing
of Eurodollar Loans, or to continue such Borrowing as Eurodollar Loans, or
shall not be entitled to refinance or continue such Borrowing as Eurodollar
Loans, in each case as provided above, such Borrowing shall automatically be
refinanced with a Borrowing of ABR Loans at the expiration of the then-current
Interest Period. The Agent shall, after it receives notice from the Borrower,
promptly give each Bank notice of any refinancing, in whole or part, of any
Loan made by such Bank.
SECTION 2.12. COMMITMENT TERMINATION; CASH COLLATERAL. Upon
the Termination Date, the Total Commitment shall be terminated in
full and the Borrower shall pay the Loans in full and, except as
the Agent may otherwise agree in writing, if any Letter of Credit
remains outstanding, deposit into the Letter of Credit Account an
amount equal to 105% of the amount by which the sum of the
aggregate Letter of Credit Outstandings exceeds the amount of cash
held in the Letter of Credit Account, such cash to be remitted to
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the Borrower upon the expiration, cancellation, satisfaction or other
termination of such reimbursement obligations, or otherwise comply with Section
2.2(b).
SECTION 2.13. OPTIONAL PREPAYMENT OF LOANS; REIMBURSEMENT OF
BANKS.
(a) The Borrower shall have the right at any time and
from time to time to prepay any Loans, in whole or in part, (x) with respect to
Eurodollar Loans, upon at least three Business Days' prior written, telex or
facsimile notice to the Agent and (y) with respect to ABR Loans on the same
Business Day if written, telex or facsimile notice is received by the Agent
prior to 12:00 noon, New York City time, and thereafter upon at least one
Business Day's prior written, telex or facsimile notice to the Agent; provided,
however, that (i) with respect to Eurodollar Loans, each such partial
prepayment shall be in multiples of $1,000,000, (ii) with respect to ABR Loans,
each such partial prepayment shall be in integral multiples of $1,000,000,
(iii) no prepayment of Eurodollar Loans shall be permitted pursuant to this
Section 2.13(a) other than on the last day of an Interest Period applicable
thereto (and other than in connection with the syndication of the credit
facility evidenced by this Agreement), and (iv) no partial prepayment of a
Borrowing of Eurodollar Loans shall result in the aggregate principal amount of
the Eurodollar Loans remaining outstanding pursuant to such Borrowing being
less than $5,000,000. Each notice of prepayment shall specify the prepayment
date, the principal amount of the Loans to be prepaid and in the case of
Eurodollar Loans, the Borrowing or Borrowings pursuant to which made, shall be
irrevocable and shall commit the Borrower to prepay such Loan by the amount and
on the date stated therein. The Agent shall, promptly after receiving notice
from the Borrower hereunder, notify each Bank of the principal amount of the
Loans held by such Bank which are to be prepaid, the prepayment date and the
manner of application of the prepayment.
(b) The Borrower shall reimburse each Bank on demand
for any loss incurred or to be incurred by it in the reemployment of the funds
released (i) resulting from any prepayment (for any reason whatsoever,
including, without limitation, refinancing with ABR Loans) of any Eurodollar
Loan required or permitted under this Agreement, if such Loan is prepaid other
than on the last day of the Interest Period for such Loan (including, without
limitation,
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any such prepayment in connection with the syndication of the credit facility
evidenced by this Agreement) or (ii) in the event that after the Borrower
delivers a notice of borrowing under Section 2.5 in respect of Eurodollar
Loans, such Loans are not made on the first day of the Interest Period
specified in such notice of borrowing for any reason other than a breach by
such Bank of its obligations hereunder. Such loss shall be the amount as
reasonably determined by such Bank as the excess, if any, of (A) the amount of
interest which would have accrued to such Bank on the amount so paid or not
borrowed at a rate of interest equal to the Adjusted LIBOR Rate for such Loan,
for the period from the date of such payment or failure to borrow to the last
day (x) in the case of a payment or refinancing with ABR Loans other than on
the last day of the Interest Period for such Loan, of the then current Interest
Period for such Loan, or (y) in the case of such failure to borrow, of the
Interest Period for such Loan which would have commenced on the date of such
failure to borrow, over (B) the amount of interest which would have accrued to
such Bank on such amount by placing such amount on deposit for a comparable
period with leading banks in the London interbank market. Each Bank shall
deliver to the Borrower from time to time one or more certificates setting
forth the amount of such loss as determined by such Bank.
(c) In the event the Borrower fails to prepay any Loan
on the date specified in any prepayment notice delivered pursuant to Section
2.13(a), the Borrower on demand by any Bank shall pay to the Agent for the
account of such Bank any amounts required to compensate such Bank for any loss
incurred by such Bank as a result of such failure to prepay, including, without
limitation, any loss, cost or expenses incurred by reason of the acquisition of
deposits or other funds by such Bank to fulfill deposit obligations incurred in
anticipation of such prepayment, but without duplication of any amounts paid
under Section 2.13(b). Each Bank shall deliver to the Borrower from time to
time one or more certificates setting forth the amount of such loss as
determined by such Bank.
(d) Any partial prepayment of the Loans by the Borrower
pursuant to Sections 2.12 or 2.13 shall be applied as specified by the Borrower
or, in the absence of such specification, as deter mined by the Agent, provided
that in each case no Eurodollar Loans shall be prepaid pursuant to Section 2.12
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to the extent that such Loan has an Interest Period ending after the required
date of prepayment unless and until all outstanding ABR Loans and Euro dollar
Loans with Interest Periods ending on such date have been repaid in full.
SECTION 2.14. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if
after the date of this Agreement any change in applicable law or regulation or
in the interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall change the basis of taxation of payments to any
Bank of the principal of or interest on any Eurodollar Loan made by such Bank
or any fees or other amounts payable hereunder (other than changes in respect
of Taxes, Other Taxes and taxes imposed on, or measured by, the net income or
overall gross receipts or franchise taxes of such Bank by the jurisdiction in
which such Bank has its principal office or in which the applicable lending
office for such Eurodollar Loan is located or by any political subdivision or
taxing authority therein, or by any other jurisdiction or by any political
subdivision or taxing authority therein other than a jurisdiction in which such
Bank would not be subject to tax but for the execution and performance of this
Agreement), or shall impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of or credit extended by such Bank (except any such reserve requirement
which is reflected in the Adjusted LIBOR Rate) or shall impose on such Bank or
the London interbank market any other condition affecting this Agreement or the
Eurodollar Loans made by such Bank, and the result of any of the foregoing
shall be to increase the cost to such Bank of making or maintaining any
Eurodollar Loan or to reduce the amount of any sum received or receivable by
such Bank hereunder or under the Notes (whether of principal, interest or
otherwise) by an amount deemed by such Bank to be material, then the Borrower
will pay to such Bank in accordance with paragraph (c) below such additional
amount or amounts as will compensate such Bank for such additional costs
incurred or reduction suffered.
(b) If any Bank shall have determined that the
applicability of any change in any law, rule, regulation or
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guideline adopted pursuant to or arising out of the July 1988 report of the
Basel Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards", or
the adoption or effectiveness after the date hereof of any law, rule,
regulation or guideline regarding capital adequacy, or any change in any of the
foregoing or in the interpretation or administration of any of the foregoing by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or any
Lending Office of such Bank) or any Bank's holding company with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital or on the capital
of such Bank's holding company, if any, as a consequence of this Agreement, the
Loans made by such Bank pursuant hereto, such Bank's Commitment hereunder or
the issuance of, or participation in, any Letter of Credit by such Bank to a
level below that which such Bank or such Bank's holding company could have
achieved but for such adoption, change or compliance (taking into account
Bank's policies and the policies of such Bank's holding company with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time the Borrower shall pay to such Bank such additional amount or
amounts as will compensate such Bank or such Bank's holding company for any
such reduction suffered.
(c) A certificate of each Bank setting forth such amount
or amounts as shall be necessary to compensate such Bank or its holding company
as specified in paragraph (a) or (b) above, as the case may be, shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay each Bank the amount shown as due on any such certificate
delivered to it within 10 days after its receipt of the same. Any Bank
receiving any such payment shall promptly make a refund thereof to the Borrower
if the law, regulation, guideline or change in circum stances giving rise to
such payment is subsequently deemed or held to be invalid or inapplicable.
(d) Failure on the part of any Bank to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any
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period shall not constitute a waiver of such Bank's right to demand
compensation with respect to such period or any other period. The protection of
this Section shall be available to each Bank regard less of any possible
contention of the invalidity or inapplic ability of the law, rule, regulation,
guideline or other change or condition which shall have occurred or been
imposed.
SECTION 2.15. CHANGE IN LEGALITY.
(a) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if (x) any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful for a Bank to make or maintain a
Eurodollar Loan or to give effect to its obligations as contemplated hereby
with respect to a Eurodollar Loan or (y) at any time any Bank determines that
the making or continuance of any of its Eurodollar Loans has become
impracticable as a result of a contingency occurring after the date hereof
which adversely affects the London interbank market or the position of such
Bank in such market, then, by written notice to the Borrower, such Bank may (i)
declare that Eurodollar Loans will not thereafter be made by such Bank
hereunder, whereupon any request by the Borrower for a Eurodollar Borrowing
shall, as to such Bank only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn; and (ii) require that all
outstanding Eurodollar Loans made by it be converted to ABR Loans, in which
event all such Eurodollar Loans shall be automatically converted to ABR Loans
as of the effective date of such notice as provided in paragraph (b) below. In
the event any Bank shall exercise its rights under clause (i) or (ii) of this
paragraph (a), all payments and prepayments of principal which would otherwise
have been applied to repay the Eurodollar Loans that would have been made by
such Bank or the converted Eurodollar Loans of such Bank shall instead be
applied to repay the ABR Loans made by such Bank in lieu of, or resulting from
the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the
Borrower by any Bank pursuant to paragraph (a) above shall be effective, if
lawful, and if any Eurodollar Loans shall then be outstanding, on the last day
of the then-current Interest Period,
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otherwise, such notice shall be effective on the date of receipt by
the Borrower.
SECTION 2.16. PRO RATA TREATMENT, ETC. All payments and repayments
of principal and interest in respect of the Loans (except as provided in
Sections 2.14 and 2.15) shall be made pro rata among the Banks in accordance
with the then outstanding principal amount of the Loans and/or participations
in Letter of Credit Outstandings and all outstanding undrawn Letters of Credit
(and the unreimbursed amount of drawn Letters of Credit) hereunder and all
payments of Commitment Fees and Letter of Credit Fees (other than those payable
to a Fronting Bank) shall be made pro rata among the Banks in accordance with
their Commitments. All payments by the Borrower hereunder and under the Notes
shall be (i) net of any tax applicable to the Borrower or Guarantor and (ii)
made in Dollars in immediately available funds at the office of the Agent by
12:00 noon, New York City time, on the date on which such payment shall be due.
Interest in respect of any Loan hereunder shall accrue from and including the
date of such Loan to but excluding the date on which such Loan is paid in full
or converted to a Loan of a different Type.
SECTION 2.17. TAXES.
(a) Any and all payments by the Borrower or any
Guarantor hereunder and under the Notes shall be made free and clear of and
without deduction for any and all current or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding (i) taxes imposed on or measured by the net income or overall gross
receipts of the Agent or any Bank (or any transferee or assignee thereof,
including a participation holder (any such entity being called a "Transferee"))
and franchise taxes imposed on the Agent or any Bank (or Transferee) by the
United States or any jurisdiction under the laws of which the Agent or any such
Bank (or Transferee) is organized or in which the applicable lending office of
any such Bank (or Transferee) is located or any political subdivision thereof
or by any other jurisdiction or by any political subdivision or taxing
authority therein other than a jurisdiction in which the Agent or such Bank
would not be subject to tax but for the execution and performance of this
Agreement and (ii) taxes, levies, imposts, deductions, charges or withholdings
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("Amounts") with respect to payments hereunder or under the Notes to a Bank (or
Transferee) in accordance with laws in effect on the later of the date of this
Agreement and the date such Bank (or Transferee) becomes a Bank (or Transferee,
as the case may be), but not excluding, with respect to such Bank (or
Transferee), any increase in such Amounts solely as a result of any change in
such laws occurring after such later date or any Amounts that would not have
been imposed but for actions (other than actions contemplated by this Agreement
or the Notes) taken by the Borrower after such later date (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower or any Guarantor shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to the Banks (or any Transferee) or the Agent, (i) the sum payable
shall be increased by the amount necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section) such Bank (or Transferee) or the Agent (as the case may be) shall
receive an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii)
the Borrower shall pay the full amount deducted to the relevant taxing
authority or other Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any current
or future stamp or documentary taxes or any other excise or property taxes,
charges, assessments or similar levies that arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").
(c) The Borrower will indemnify each Bank (or
Transferee) and the Agent for the full amount of Taxes and Other Taxes paid by
such Bank (or Transferee) or the Agent, as the case may be, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted by the relevant taxing authority or other Governmental Authority. Such
indemnification shall be made within 30 days after the date any Bank (or
Transferee) or the Agent, as the case may be, makes written demand therefor. If
a Bank (or Transferee) or the Agent shall become aware that it is entitled to
receive a refund in
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respect of Taxes or Other Taxes as to which it has been indemnified by the
Borrower pursuant to this Section, it shall promptly notify the Borrower of the
availability of such refund and shall, within 30 days after receipt of a
request by the Borrower, apply for such refund at the Borrower's expense. If
any Bank (or Transferee) or the Agent receives a refund in respect of any Taxes
or Other Taxes as to which it has been indemnified by the Borrower pursuant to
this Section, it shall promptly notify the Borrower of such refund and shall,
within 30 days after receipt of a request by the Borrower (or promptly upon
receipt, if the Borrower has requested application for such refund pursuant
hereto), repay such refund to the Borrower (to the extent of amounts that have
been paid by the Borrower under this Section with respect to such refund plus
interest that is received by the Bank (or Transferee) or the Agent as part of
the refund), net of all out-of-pocket expenses of such Bank (or Transferee) or
the Agent and without additional interest thereon; provided that the Borrower,
upon the request of such Bank (or Transferee) or the Agent, agrees to return
such refund (plus penalties, interest or other charges) to such Bank (or
Transferee) or the Agent in the event such Bank (or Transferee) or the Agent is
required to repay such refund. Nothing contained in this subsection (c) shall
require any Bank (or Transferee) or the Agent to make available any of its tax
returns (or any other information relating to its taxes that it deems to be
confidential).
(d) Within 30 days after the date of any payment of
Taxes or Other Taxes withheld by the Borrower in respect of any payment to any
Bank (or Transferee) or the Agent, the Borrower will furnish to the Agent, at
its address referred to on the signature pages hereof, the original or a
certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations contained in this
Section shall survive the payment in full of the principal of and interest on
all Loans made hereunder.
(f) Each Bank (or Transferee) that is organized under
the laws of a jurisdiction outside the United States shall, if legally able to
do so, prior to the immediately following due date of any payment by the
Borrower hereunder, deliver to the Borrower such certificates, documents or
other evidence, as required by the
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Code or Treasury Regulations issued pursuant thereto, including (A) Internal
Revenue Service Form W-8 or W-9 and (B) Internal Revenue Service Form 1001 or
Form 4224 and any other certificate or statement of exemption required by
Treasury Regulation Section 1.1441-1, 1.1441-4 or 1.1441-6(c) or any subsequent
version thereof or successors thereto, properly completed and duly executed by
such Bank (or Transferee) establishing that such payment is (i) not subject to
United States Federal withholding tax under the Code because such payment is
effectively connected with the conduct by such Bank (or Transferee) of a trade
or business in the United States or (ii) totally exempt from United States
Federal with holding tax or subject to a reduced rate of such tax under a
provision of an applicable tax treaty. Unless the Borrower and the Agent have
received forms or other documents satisfactory to them indicating that such
payments hereunder or under the Notes are not subject to United States Federal
withholding tax or are subject to such tax at a rate reduced by an applicable
tax treaty, the Borrower or the Agent shall withhold taxes from such payments
at the applicable statutory rate.
(g) The Borrower shall not be required to pay any
additional amounts to any Bank (or Transferee) in respect of United States
Federal withholding tax pursuant to subsection (a) above if the obligation to
pay such additional amounts would not have arisen but for a failure by such
Bank (or Transferee) to comply with the provisions of subsection (f) above.
(h) Any Bank (or Transferee) claiming any additional
amounts payable pursuant to this Section 2.17 shall use reasonable efforts
(consistent with legal and regulatory restrictions) to file any certificate
or document requested by the Borrower or to change the jurisdiction of
its applicable lending office if the making of such a filing or change would
avoid the need for or reduce the amount of any such additional amounts that
may thereafter accrue and would not, in the sole reasonable determination
of such Bank, be otherwise materially disadvantageous to such Bank (or
Transferee).
SECTION 2.18. CERTAIN FEES. The Borrower shall pay to the
Agent, for the respective accounts of the Agent and the Banks, the
fees set forth in that certain letter dated December 23, 1996 among
the Agent, Chase Securities Inc. and the Borrower.
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SECTION 2.19. COMMITMENT FEE. The Borrower shall pay to the Banks a
commitment fee (the "Commitment Fee") for the period commencing on the date the
Commitment Letter is executed to the Termination Date or the earlier date of
termination of the Commitment, computed (on the basis of the actual number of
days elapsed over a year of 360 days) at the rate of one-half of one percent
(1/2%) per annum on the average daily Unused Total Commitment. Such Commitment
Fee, to the extent then accrued, shall be payable (x) monthly, in arrears, on
the last calendar day of each month, (y) on the Termination Date and (z) as
provided in Section 2.9 hereof, upon any reduction or termination in whole or
in part of the Total Commitment.
SECTION 2.20. LETTER OF CREDIT FEES. The Borrower shall pay with
respect to each Letter of Credit (i) to the Agent on behalf of the Banks a fee
calculated (on the basis of the actual number of days elapsed over a year of
360 days) at the rate of (x) two and one-half (2-1/2%) per annum on the daily
average Letter of Credit Outstandings and (ii) to the Fronting Bank such
Fronting Bank's customary fees for issuance, amendments and processing referred
to in Section 2.2. In addition, the Borrower agrees to pay each Fronting Bank
for its account a fronting fee in respect of each Letter of Credit issued by
such Fronting Bank, for the period from and including the date of issuance of
such Letter of Credit to and including the date of termination of such Letter
of Credit, com puted at a rate, and payable at times, to be determined by such
Fronting Bank, the Borrower and the Agent. Accrued fees described in clause (i)
of the first sentence of this paragraph in respect of each Letter of Credit
shall be due and payable monthly in arrears on the last calendar day of each
month and on the Termination Date, or such earlier date as the Total Commitment
is terminated. Accrued fees described in clause (ii) of the first sentence of
this paragraph in respect of each Letter of Credit shall be payable at times to
be determined by the Fronting Bank, the Borrower and the Agent.
SECTION 2.21. NATURE OF FEES. All Fees shall be paid on the
dates due, in immediately available funds, to the Agent for the
respective accounts of the Agent and the Banks, as provided herein
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and in the letter described in Section 2.18. Once paid, none of
the Fees shall be refundable under any circumstances.
SECTION 2.22. PRIORITY AND LIENS. The Borrower and each of the
Guarantors hereby covenants, represents and warrants that, upon entry of the
Interim Order (i) pursuant to Section 364(c)(1) of the Bankruptcy Code, the
Obligations of the Borrower and the Guarantors hereunder and under the Loan
Documents shall at all times constitute allowed administrative expense claims
in the Cases having priority over all administrative expenses of the kind
specified in Sections 503(b) or 507(b) of the Bankruptcy Code, (ii) pursuant to
Section 364(c)(2) of the Bankruptcy Code, the Obligations of the Borrower and
the Guarantors hereunder and under the Loan Documents shall at all times be
secured by a perfected first priority Lien on all unencumbered property of the
Borrower and the Guarantors (including, but not limited to, all of the capital
stock of Toy Biz that is held beneficially or of record, by the Borrower or any
of the Guarantors but limited, in the case of Subsidiaries that are
incorporated in jurisdictions other than within the United States, to 65% of
the issued and outstanding capital stock thereof) and all cash maintained in
the Letter of Credit Account and any direct investments of the funds contained
therein, (iii) pursuant to Section 364(c)(3) of the Bankruptcy Code, the
Obligations of the Borrower and the Guarantors hereunder and under the Loan
Documents shall be secured by a perfected Lien upon all property of the
Borrower and the Guarantors (other than the property that is subject to
existing Liens that presently secure the obligations of the Borrower and the
Guarantors under the Existing Agreements, as to which the Lien in favor of the
Agent and the Banks will be as described in clause (iv) of this sentence) that
is subject to valid and perfected Liens in existence on the Filing Date and to
other Permitted Liens described in clause (v) of the definition of such term
herein (and extensions, renewals and replacements thereof described in clause
(vi) of such definition), junior to such valid and perfected Liens, and (iv)
pursuant to Section 364(d)(1) of the Bankruptcy Code, the Obligations of the
Borrower and the Guarantors hereunder and under the Loan Documents shall be
secured by a perfected first priority, senior priming Lien on all property of
the Borrower and the Guarantors (including without limitation, accounts
receivable, inventory, equipment, intellectual property and the capital stock
of certain direct or indirect Subsidiaries of the Borrower (other
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than Toy Biz) and the proceeds thereof) that is subject to existing Liens
that presently secure the Borrower's and the Guarantors' pre-petition
Indebtedness under the Existing Agreements and any Liens granted after the
Filing Date to provide adequate protection in respect of the Existing
Agreements, subject in each case only to (x) in the event of the occurrence
and during the continuance of an Event of Default or an event that would
constitute an Event of Default with the giving of notice or lapse of time or
both, the payment of allowed and unpaid professional fees and disbursements
incurred by the Borrower, the Guarantors, and any statutory committees
appointed in the Cases in an aggregate amount not in excess of $2,500,000 and
(y) the payment of unpaid fees pursuant to 28 U.S.C. ss.1930 (collectively,
the "Carve-Out"), provided that following the Termination Date amounts in the
Letter of Credit Account shall not be subject to the Carve-Out. The Banks
agree that so long as no Event of Default or event which with the giving of
notice or lapse of time or both would constitute an Event of Default shall
have occurred, the Borrower and the Guarantors shall be permitted to pay
compensation and reimbursement of expenses allowed and payable under 11 U.S.C.
ss. 330 and 11 U.S.C. ss. 331, as the same may be due and payable, and the
same shall not reduce the Carve-Out.
SECTION 2.23. RIGHT OF SET-OFF. Subject to the provisions of
Section 7.1, upon the occurrence and during the continuance of any Event of
Default, the Agent and each Bank is hereby authorized at any time and from time
to time, to the fullest extent permitted by law and without further order of or
application to the Bankruptcy Court, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by the Agent and each such Bank to or for
the credit or the account of the Borrower or any Guarantor against any and all
of the obligations of such Borrower or Guarantor now or hereafter existing
under the Loan Documents, irrespective of whether or not such Bank shall have
made any demand under any Loan Document and although such obligations may be
unmatured. Each Bank and the Agent agrees promptly to notify the Borrower and
Guarantors after any such set-off and application made by such Bank or by the
Agent, as the case may be, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of each
Bank and the Agent under this Section are in addition to
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other rights and remedies which such Bank and the Agent may have upon the
occurrence and during the continuance of any Event of Default.
SECTION 2.24. SECURITY INTEREST IN LETTER OF CREDIT ACCOUNT.
Pursuant to Section 364(c)(2) of the Bankruptcy Code, the Borrower and the
Guarantors hereby assign and pledge to the Agent, for its benefit and for the
ratable benefit of the Banks, and hereby grant to the Agent, for its benefit
and for the ratable benefit of the Banks, a first priority security interest,
senior to all other Liens, if any, in all of the Borrower's and the Guarantors'
right, title and interest in and to the Letter of Credit Account and any direct
investment of the funds contained therein.
SECTION 2.25. PAYMENT OF OBLIGATIONS. Upon the maturity (whether by
acceleration or otherwise) of any of the obligations under this Agreement or
any of the other Loan Documents of the Borrower and the Guarantors, the Banks
shall be entitled to immediate payment of such obligations without further
application to or order of the Bankruptcy Court.
SECTION 2.26. NO DISCHARGE; SURVIVAL OF CLAIMS. Each of the
Borrower and the Guarantors agrees that (i) its obligations hereunder shall not
be discharged by the entry of an order confirming a Plan of Reorganization
(and each of the Borrower and the Guarantors, pursuant to Section 1141(d)(4) of
the Bankruptcy Code, hereby waives any such discharge) and (ii) the
Superpriority Claim granted to the Agent and the Banks pursuant to the Order
and described in Section 2.22 and the Liens granted to the Agent pursuant to
the Order and described in Sections 2.22 and 2.24 shall not be affected in any
manner by the entry of an order confirming a Plan of Reorganization.
SECTION 2.27. USE OF CASH COLLATERAL. Notwithstanding anything to
the contrary contained herein, the Borrower shall not be permitted (i) to
request a Borrowing under Section 2.5 or request the issuance of a Letter of
Credit under Section 2.3 unless the Bankruptcy Court shall have entered the
Cash Collateral Order or (ii) to request a Borrowing under Section 2.5 unless
the Borrower and the Guarantors shall at that time have used all cash
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collateral subject to the Cash Collateral Order for the purposes described in
Section 3.10.
SECTION 3. REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to make Loans and issue and/or
participate in Letters of Credit hereunder, the Borrower and each of the
Guarantors jointly and severally represent and warrant as follows:
SECTION 3.1. ORGANIZATION AND AUTHORITY. Each of the Borrower and
the Guarantors (i) is a corporation duly organized and validly existing under
the laws of the State of its incorporation and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which the failure
to so qualify would have a material adverse effect on the financial condition,
operations, business, properties or assets of the Borrower and the Guarantors
taken as a whole; (ii) has the requisite corporate power and authority to
effect the transactions contemplated hereby, and by the other Loan Documents to
which it is a party, and (iii) has all requisite corporate power and authority
and the legal right to own, pledge, mortgage and operate its properties, and to
conduct its business as now or currently proposed to be conducted.
SECTION 3.2. DUE EXECUTION. The execution, delivery and performance
by each of the Borrower and the Guarantors of each of the Loan Documents to
which it is a party (i) are within the respective corporate powers of each of
the Borrower and the Guarantors, have been duly authorized by all necessary
corporate action, including the consent of shareholders where required, and do
not (A) contravene the charter or by-laws of any of the Borrower or the
Guarantors, (B) violate any law (including, without limitation, the Securities
Exchange Act of 1934) or regulation (including, without limitation, Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System), or any
order or decree of any court or governmental instrumentality, (C) conflict with
or result in a breach of, or constitute a default under, any material
indenture, mortgage or deed of trust entered into after the Filing Date or any
material lease, agreement or other instrument entered into after the Filing
Date binding on the Borrower or the Guarantors or any of their properties, or
(D)
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result in or require the creation or imposition of any Lien upon any of the
property of any of the Borrower or the Guarantors other than the Liens granted
pursuant to this Agreement; and do not require the consent, authorization by or
approval of or notice to or filing or registration with any Governmental
Authority other than the entry of the Orders. This Agreement has been duly
executed and delivered by each of the Borrower and the Guarantors.
This Agreement is, and each of the other Loan Documents to which the Borrower
and each of the Guarantors is or will be a party, when delivered hereunder or
thereunder, will be, a legal, valid and binding obligation of the Borrower and
each Guarantor, as the case may be, enforceable against the Borrower and the
Guarantors, as the case may be, in accordance with its terms.
SECTION 3.3 STATEMENTS MADE. The information that has been
delivered in writing by the Borrower or any of the Guarantors to the Agent or
to the Bankruptcy Court in connection with any Loan Document, and any financial
statement delivered pursuant hereto or thereto (other than to the extent that
any such statements constitute projections), taken as a whole and in light of
the circumstances in which made, contains no untrue statement of a material
fact and does not omit to state a material fact necessary to make such
statements not misleading; and, to the extent that any such information
constitutes projections, such projections were prepared in good faith on the
basis of assumptions, methods, data, tests and information believed by the
Borrower or such Guarantor to be reasonable at the time such projections were
furnished.
SECTION 3.4. FINANCIAL STATEMENTS. The Borrower has furnished the
Banks with copies of (i) the audited consolidated financial statement and
schedules of the Borrower for the fiscal year ended December 31, 1995 and (ii)
the unaudited consolidated financial statement and schedules of the Borrower
for the fiscal quarter ended September 30, 1996. Such financial statements
present fairly the financial condition and results of operations of the
Borrower and the Guarantors on a consolidated basis as of such dates and for
such periods; such balance sheets and the notes thereto disclose all
liabilities, direct or contingent, of the Borrower and the Guarantors as of the
dates thereof required to be disclosed by GAAP and such financial statements
were prepared in a manner consistent with GAAP, subject (in the case of such
fiscal
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quarter statement) to normal year end adjustments. No material adverse
change in the, operations, business, properties, assets, prospects or condition
(financial or otherwise) of the Borrower and the Guarantors, taken as a whole,
has occurred from that set forth in the Borrower's disclosure statement
prepared in connection with the Proposed Plan heretofore furnished to the Agent
(the "Disclosure Statement") other than (x) those which customarily occur and
as a result of events leading up to and following the commencement of a
proceeding under Chapter 11 of the Bankruptcy Code and (y) the commencement of
the Cases (it being understood that any non-cash restructuring and other
non-cash charges to be reflected on the Borrower's 1996 consolidated financial
statements will not in themselves be deemed to constitute such a material
adverse change).
SECTION 3.5. OWNERSHIP. Each of the Persons listed on Schedule 3.5
is a wholly-owned, direct or indirect Subsidiary of the Borrower, and the
Borrower owns no other Subsidiaries, whether directly or indirectly, other than
as set forth on Schedule 3.5 (other than a Subsidiary formed to carry on a
portion of the activities of the business segment of the Borrower and the
Guarantors known as Marvel Studios, which Subsidiary shall not be a Guarantor).
SECTION 3.6. LIENS. Except for Liens existing on the Filing Date as
reflected on Schedule 3.6, there are no Liens of any nature whatsoever on any
assets of the Borrower or any of the Guarantors other than: (i) Liens granted
pursuant to the Existing Agreements; (ii) Permitted Liens; (iii) Liens
permitted pursuant to Section 6.1(ii); and (iv) Liens in favor of the Agent and
the Banks. Neither the Borrower nor the Guarantors are parties to any contract,
agreement, lease or instrument the performance of which, either unconditionally
or upon the happening of an event, will result in or require the creation of a
Lien on any assets of the Borrower or any Guarantor or otherwise result in a
violation of this Agreement other than the Liens granted to the Agent and the
Banks as provided for in this Agreement.
SECTION 3.7. COMPLIANCE WITH LAW.
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(a) (i) The operations of the Borrower and the Guarantors comply in all
material respects with all applicable environmental, health and safety statutes
and regulations, including, without limitation, regulations promulgated under
the Resource Conservation and Recovery Act (42 U.S.C. ss.ss.6901 et seq.); (ii)
to the Borrower's and each of the Guarantor's knowledge, none of the operations
of the Borrower or the Guarantors is the subject of any Federal or state
investigation evaluating whether any remedial action involving a material
expenditure by the Borrower or any Guarantor is needed to respond to a release
of any Hazardous Waste or Hazardous Substance (as such terms are defined in any
applicable state or Federal environmental law or regulations) into the
environment; and (iii) to the Borrower's and each of the Guarantor's knowledge,
the Borrower and the Guarantors do not have any material contingent liability
in connection with any release of any Hazardous Waste or Hazardous Substance
into the environment.
(b) Neither the Borrower nor any Guarantor is, to the
best of its knowledge, in violation of any law, rule or regulation,
or in default with respect to any judgment, writ, injunction or
decree of any Governmental Authority the violation of which, or a default with
respect to which, would have a material adverse effect on the financial
condition, operations, business, properties or assets of the Borrower and the
Guarantors taken as a whole.
SECTION 3.8. INSURANCE. All policies of insurance of any kind or
nature owned by or issued to the Borrower and the Guarantors, including,
without limitation, policies of life, fire, theft, product liability, public
liability, property damage, other casualty, employee fidelity, workers'
compensation, employee health and welfare, title, property and liability
insurance, are in full force and effect and are of a nature and provide such
coverage as is sufficient and as is customarily carried by companies of the
size and character of the Borrower and the Guarantors.
SECTION 3.9. THE ORDERS. On the date of the making of the initial
Loans or the issuance of the initial Letters of Credit hereunder, whichever
first occurs, the Interim Order will have been entered and will not have been
stayed, amended, vacated,
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reversed or rescinded. On the date of the making of any Loan or the issu
ance of any Letter of Credit, the Interim Order or the Final Order, as the
case may be, shall have been entered and shall not have been amended, stayed,
vacated or rescinded. Upon the maturity (whether by the acceleration or
otherwise) of any of the obligations of the Borrower and the Guarantors
hereunder and under the other Loan Documents, the Banks shall, subject to the
provisions of Section 7.1, be entitled to immediate payment of such
obligations, and to enforce the remedies provided for hereunder, without
further appli cation to or order by the Bankruptcy Court.
SECTION 3.10. USE OF PROCEEDS. The proceeds of the Loans shall be
used (i) for general working capital of the Borrower and the Guarantors, and
(ii) for other general corporate purposes of the Borrower and the Guarantors
(including among such general corporate purposes, the making of Investments,
subject to the limitations provided for in Section 6.10, and the making of
Capital Expenditures, subject to the limitations provided for in Section 6.4).
SECTION 3.11. LITIGATION. Except as set forth on Schedule 3.11,
there are no unstayed actions, suits or proceedings pending or, to the
knowledge of the Borrower or the Guarantors, threatened against or affecting
the Borrower or the Guarantors or any of its properties, before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which is reasonably likely to be determined adversely to
the Borrower or the Guarantors and, if so determined adversely to the Borrower
or the Guarantors would have a material adverse effect on the financial
condition, business, properties, prospects, operations or assets of the
Borrower and the Guarantors, taken as a whole.
SECTION 4. CONDITIONS OF LENDING
SECTION 4.1. CONDITIONS PRECEDENT TO INITIAL LOANS AND INITIAL
LETTERS OF CREDIT. The obligation of the Banks to make the initial Loans or the
Fronting Bank to issue the initial Letter of Credit, whichever may occur first,
is subject to the following conditions precedent:
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(a) Supporting Documents. The Agent shall have
received for each of the Borrower and the Guarantors:
(i) a copy of such entity's certificate of
incorporation, as amended, certified as of a recent date
by the Secretary of State of the state of its
incorporation;
(ii) a certificate of such Secretary of
State, dated as of a recent date, as to the good
standing of and payment of taxes by, that entity and as
to the charter documents on file in the office of such
Secretary of State; and
(iii) a certificate of the Secretary or an
Assistant Secretary of that entity dated the date of
the initial Loans or the initial Letter of Credit
hereunder, whichever first occurs, and certifying (A)
that attached thereto is a true and complete copy of
the by-laws of that entity as in effect on the date of
such certification, (B) that attached thereto is a true
and complete copy of resolutions adopted by the Board
of Directors of that entity authorizing the Borrowings
and Letter of Credit extensions hereunder, the
execution, delivery and performance in accordance with
their respective terms of this Agreement, the Notes to
be executed by it, the Loan Documents and any other
documents required or contemplated hereunder or
thereunder and the granting of the security interest in
the Letter of Credit Account contemplated hereby, (C)
that the certificate of incorporation of that entity
has not been amended since the date of the last
amendment thereto indicated on the certificate of the
Secretary of State furnished pursuant to clause (i)
above and (D) as to the incumbency and specimen
signature of each officer of that entity executing this
Agreement, the Notes to be executed by it and the Loan
Documents or any other document delivered by it in
connection herewith or therewith (such certificate to
contain a certification by another officer of that
entity as to the incumbency and signature of the
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officer signing the certificate referred to in this
clause (iii)).
(b) Notes. On or before the date of the initial Loans
or the issuance of the initial Letter of Credit hereunder,
whichever first occurs, the Agent shall have received Notes
executed on behalf of the Borrower, dated the Closing Date, payable
to the order of each of the Banks, in an amount equal to such
Bank's Commitment.
(c) Interim Order. At the time of the making of the
initial Loans or at the time of the issuance of the initial Letter
of Credit, whichever first occurs, the Agent and the Banks shall
have received a certified copy of an order of the Bankruptcy Court
in substantially the form of Exhibit B-1 (the "Interim Order")
approving the Loan Documents and granting the Superpriority Claim
status and priming and other Liens described in Section 2.22 which
(i) shall have been entered upon an application or motion of the
Borrower reasonably satisfactory in form and substance to the
Agent, on such prior notice to such parties (including the Existing
Lenders) as may in each case be reasonably satisfactory to the
Agent, (ii) shall be in full force and effect, and (iii) shall not
have been stayed, reversed, modified or amended in any respect
without the prior written consent of the Agent and the Required
Banks and, if the Interim Order is the subject of a pending appeal
in any respect, neither the making of such Loans nor the issuance
of such Letter of Credit nor the performance by the Borrower or any
of the Guarantors of any of their respective obligations hereunder
or under the Loan Documents or under any other instrument or
agreement referred to herein shall be the subject of a presently
effective stay pending appeal.
(d) Cash Collateral Order. At the time of the making of
the initial Loans or at the time of the issuance of the initial
Letter of Credit, whichever first occurs, the Agent and the Banks
shall have received a certified copy of an order or orders of the
Bankruptcy Court in form and substance reasonably satisfactory to
the Agent (the "Cash Collateral Order") pursuant to Section
363(c)(2)(B) of the Bankruptcy Code (which Cash Collateral Order
may be embodied in the
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Interim Order and the Final Order) authorizing the use by the
Borrower and the Guarantors of any cash collateral in which any
Existing Lender under any Existing Agreement may have an interest
and providing for (x) the making of current interest payments and
letter of credit fees at the applicable non-default rate or rates
provided for pursuant to the Existing Agreements, (y) a priority
claim as contemplated by Section 507(b) of the Bankruptcy Code, and
(z) a Lien on substantially all of the assets of the Borrower and
the Guarantors having a priority junior to the priming and other
Liens granted in favor of the Agent and the Banks hereunder and
under the other Loan Documents which Cash Collateral Order shall be
in full force and effect and shall not have been stayed, reversed,
modified or amended in any respect without the prior written
consent of the Agent and the Required Banks.
(e) Security and Pledge Agreement. The Borrower and
each of the Guarantors shall have duly executed and delivered to
the Agent a Security and Pledge Agreement in substantially the form
of Exhibit C (the "Security and Pledge Agreement").
(f) Plan of Reorganization. The Agent shall have
received evidence satisfactory to it that the Borrower has filed
with the Bankruptcy Court (i) a plan of reorganization for itself
and the Guarantors satisfactory in form and substance to the Agent
(the "Proposed Plan") providing for, among other things, (x) the
investment by Andrews Group Incorporated or an affiliate thereof
("Andrews Group") in the Borrower of $365,000,000 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, (y)
the acquisition by the Borrower or one or more subsidiaries of the
Borrower of 100% of the outstanding capital stock of Toy Biz and
(z) only such impairment of the rights of and claims held by the
Existing Lenders as may be satisfactory to the Agent, and (ii) a
disclosure statement with respect to the Proposed Plan pursuant to
the provisions of the Bankruptcy Code satisfactory in form and
substance to the Agent and the Bankruptcy Court shall have
scheduled a hearing on the approval of such disclosure statement.
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(g) Financing Commitment. The Agent shall have received
evidence satisfactory to it that certain financial institutions
have executed and delivered to the Borrower commitments to provide,
at the time of the consummation of the Proposed Plan and such
acquisition of the outstanding capital stock of Toy Biz, the
aggregate principal amount of no less than $160,000,000 as a credit
facility for Toy Biz, such commitments to reflect such terms and
conditions (and be only subject to such qualifications) as may be
satisfactory to the Agent.
(h) First Day Orders. All of the "first day orders"
entered by the Bankruptcy Court at the time of the
commencement of the Cases shall be reasonably satisfactory in
form and substance to the Agent.
(i) Opinion of Counsel to the Borrower. The Agent and
the Banks shall have received the favorable written opinion of
counsel to the Borrower and the Guarantors reasonably acceptable to
the Agent, dated the date of the initial Loans or the issuance of
the initial Letter of Credit, whichever first occurs, substantially
in the form of Exhibit D.
(j) Payment of Fees. The Borrower shall have paid to
the Agent the then unpaid balance of all accrued and unpaid Fees
owed under and pursuant to this Agreement and the letter referred
to in Section 2.18.
(k) Corporate and Judicial Proceedings. All corporate
and judicial proceedings and all instruments and agreements in
connection with the transactions among the Borrower, the Guarantors,
the Agent and the Banks contemplated by this Agreement shall be
reasonably satisfactory in form and substance to the Agent, and the
Agent shall have received all information and copies of all
documents and papers, including records of corporate and judicial
proceedings, which the Agent may have reasonably requested in
connection therewith, such documents and papers where appropriate
to be certified by proper corporate, governmental or judicial
authorities.
(l) Information. The Agent shall have received such
information (financial or otherwise) as may be reasonably
requested by the Agent.
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(m) Compliance with Laws. The Borrower and the
Guarantors shall have granted the Agent access to and the right to
inspect all reports, audits and other internal information of the
Borrower and the Guarantors relating to environmental matters, and
any third party verification of certain matters relating to
compliance with environmental laws and regulations requested by the
Agent, and the Agent shall be reasonably satisfied that the
Borrower and the Guarantors are in compliance in all material
respects with all applicable environmental laws and regulations and
be satisfied with the costs of maintaining such compliance.
(n) Closing Documents. The Agent shall have received
all documents required by this Agreement reasonably
satisfactory in form and substance to the Agent.
SECTION 4.2. CONDITIONS PRECEDENT TO EACH LOAN AND EACH LETTER OF
CREDIT. The obligation of the Banks to make each Loan and of the Fronting Bank
to issue each Letter of Credit, including the initial Loan and the initial
Letter of Credit, is subject to the following conditions precedent:
(a) Notice. The Agent shall have received a notice with
respect to such borrowing or issuance, as the case may be, as
required by Section 2.
(b) Representations and Warranties. All representations
and warranties contained in this Agreement and the other Loan
Documents or otherwise made in writing in connection herewith or
therewith shall be true and correct in all material respects on and
as of the date of each Borrowing or the issuance of each Letter of
Credit hereunder with the same effect as if made on and as of such
date except to the extent such representations and warranties
expressly relate to an earlier date.
(c) No Default. On the date of each Borrowing hereunder
or the issuance of each Letter of Credit, the Borrower and
Guarantors shall be in compliance with all of the terms and
provisions set forth herein to be observed or performed and no
Event of Default or event which upon notice
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or lapse of time or both would constitute an Event of Default
shall have occurred and be continuing.
(d) Orders. The Interim Order shall be in full force
and effect and shall not have been stayed, reversed, modified or
amended in any respect without the prior written consent of the
Agent and the Required Banks, provided, that at the time of the
making of any Loan or the issuance of any Letter of Credit the
aggregate amount of either of which, when added to the sum of the
principal amount of all Loans then outstanding and the Letter of
Credit Outstandings, would exceed the amount thereof which was
authorized by the Bankruptcy Court in the Interim Order
(collectively, the "Additional Credit"), the Agent and each of the
Banks shall have received a certified copy of an order of the
Bankruptcy Court in substantially the form of Exhibit B-2 (the
"Final Order"), which, in any event, shall have been entered by the
Bankruptcy Court no later than 30 days after the entry of the
Interim Order, and at the time of the extension of any Additional
Credit the Final Order shall be in full force and effect, and shall
not have been stayed, reversed, modified or amended in any respect
without the prior written consent of the Agent and the Required
Banks; and if either the Interim Order or the Final Order is the
subject of a pending appeal in any respect, neither the making of
the Loans nor the issuance of any Letter of Credit nor the
performance by the Borrower or any Guarantor of any of their
respective obligations under any of the Loan Documents shall be the
subject of a presently effective stay pending appeal.
(e) Cash Collateral Order. The Cash Collateral Order
shall be in full force and effect and shall not have been stayed,
reversed, modified or amended in any respect without the prior
written consent of the Agent and the Required Banks.
(f) Payment of Fees. The Borrower shall have paid to
the Agent the then unpaid balance of all accrued and unpaid Fees
then payable under and pursuant to this Agreement and the letter
referred to in Section 2.18.
The request by the Borrower for, and the acceptance by the Borrower of, each
extension of credit hereunder shall be deemed to
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be a representation and warranty by the Borrower that the conditions
specified in this Section have been satisfied or waived at that time.
SECTION 5. AFFIRMATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in
effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the Letter of Credit Account, or the
face amount of back-to-back letters of credit delivered, in each case pursuant
to Section 2.2(b)), or any amount shall remain outstanding under any Note or
unpaid under this Agreement, the Borrower and each of the Guarantors agree
that, unless the Required Banks shall otherwise consent in writing, it will:
SECTION 5.1. FINANCIAL STATEMENTS, REPORTS, ETC. In the case
of the Borrower and the Guarantors, deliver to the Agent and each
of the Banks:
(a) within 90 days after the end of each fiscal year,
the Borrower's consolidated and consolidating balance sheet and
related statement of income and cash flows, showing the financial
condition of the Borrower and the Guarantors on a consolidated and
consolidating basis as of the close of such fiscal year and the
results of their respective operations during such year, the
consolidated statement of the Borrower to be audited for the
Borrower and its consolidated Subsidiaries by independent public
accountants of recognized national standing acceptable to the
Required Banks and accompanied by an opinion of such accountants
(which shall not be qualified in any material respect other than
with respect to the Cases), and the consolidating statement to be
subjected to the auditing procedures applied to such audit of the
consolidated statement, and to be certified by a Financial Officer
of the Borrower to the effect that such consolidated financial
statements fairly present the financial condition and results of
operations of the Borrower and the Guarantors on a consolidated
basis in accordance with GAAP consistently applied;
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(b) within 45 days after the end of each of the first
three fiscal quarters and within 90 days after the end of the fourth
fiscal quarter of each fiscal year, the Borrower's consolidated and
consolidating balance sheets and related statements of income and
cash flows, showing the financial condition of the Borrower and the
Guarantors on a consolidated and consolidating basis as of the
close of such fiscal quarter and the results of their operations
during such fiscal quarter and the then elapsed portion of the
fiscal year, each certified by a Financial Officer as fairly
presenting the financial condition and results of operations of the
Borrower and the Guarantors on a consolidated and consolidating
basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments;
(c) concurrently with any delivery of financial
statements under (a) or (b) above, (i) a certificate of a Financial
Officer, certifying such statements (A) certifying that no Event of
Default or event which upon notice or lapse of time or both would
constitute an Event of Default has occurred, or, if such an Event
of Default or event has occurred, specifying the nature and extent
thereof and any corrective action taken or proposed to be taken
with respect thereto and (B) setting forth computations in
reasonable detail satisfactory to the Agent demonstrating
compliance with the provisions of Sections 6.4, 6.5 and 6.10 and
(ii) a certificate (which certificate may be limited to accounting
matters and disclaim responsibility for legal interpretations) of
such accountants accompanying the audited consolidated financial
statements delivered under (a) above certifying that, in the course
of the regular audit of the business of the Borrower and its
consolidated Subsidiaries, such accountants have obtained no
knowledge that an Event of Default has occurred and is continuing,
or if, in the opinion of such accountants, an Event of Default has
occurred and is continuing, specifying the nature thereof and all
relevant facts with respect thereto;
(d) within thirty days of the end of each fiscal month
(commencing with the fiscal month ending on or about December 31,
1996), the unaudited monthly cash flow reports of the Borrower and
the Guarantors on a consolidated basis and as of the close of such
fiscal month and the results of their
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operations during such fiscal period and the then elapsed portion
of the fiscal year, all certified by a Financial Officer as fairly
presenting the results of operations of the Borrower and the
Guarantors on a consolidated basis, subject to normal year-end
audit adjustments;
(e) as soon as possible, and in any event within 45
days of the Closing Date, a pro forma statement of the Borrower's
and Guarantors' financial condition as of the Filing Date in detail
reasonably satisfactory to the Agent;
(f) promptly after the same become publicly available,
copies of all periodic and other reports, proxy statements and
other materials filed by it with the Securities and Exchange
Commission, or any governmental authority succeeding to any of or
all the functions of said commission, or with any national
securities exchange, as the case may be;
(g) as soon as available and in any event (A) within 30
days after the Borrower or any of its ERISA Affiliates knows or has
reason to know that any Termination Event described in clause (i)
of the definition of Termination Event with respect to any Single
Employer Plan of the Borrower or such ERISA Affiliate has occurred
and (B) within 10 days after the Borrower or any of its ERISA
Affiliates knows or has reason to know that any other Termination
Event with respect to any such Plan has occurred, a statement of a
Financial Officer of the Borrower describing such Termination Event
and the action, if any, which the Borrower or such ERISA Affiliate
proposes to take with respect thereto;
(h) promptly and in any event within 10 days after
receipt thereof by the Borrower or any of its ERISA Affiliates from
the PBGC copies of each notice received by the Borrower or any such
ERISA Affiliate of the PBGC's intention to terminate any Single
Employer Plan of the Borrower or such ERISA Affiliate or to have a
trustee appointed to administer any such Plan;
(i) promptly and in any event within 30 days after the
filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report
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(Form 5500 Series) with respect to each Single Employer Plan of the
Borrower or any of its ERISA Affiliates;
(j) within 10 days after notice is given or required to
be given to the PBGC under Section 302(f)(4)(A) of ERISA of the
failure of the Borrower or any of its ERISA Affiliates to make
timely payments to a Plan, a copy of any such notice filed and a
statement of a Financial Officer of the Borrower setting forth (A)
sufficient information necessary to determine the amount of the
lien under Section 302(f)(3), (B) the reason for the failure to
make the required payments and (C) the action, if any, which the
Borrower or any of its ERISA Affiliates proposed to take with
respect thereto;
(k) promptly and in any event within 10 days after
receipt thereof by the Borrower or any ERISA Affiliate from a
Multiemployer Plan sponsor, a copy of each notice received by the
Borrower or any ERISA Affiliate concerning (A) the imposition of
Withdrawal Liability by a Multiemployer Plan, (B) the determination
that a Multiemployer Plan is, or is expected to be, in
reorganization within the meaning of Title IV of ERISA, (C) the
termination of a Multiemployer Plan within the meaning of Title IV
of ERISA, or (D) the amount of liability incurred, or which may be
incurred, by the Borrower or any ERISA Affiliate in connection with
any event described in clause (A), (B) or (C) above;
(l) promptly, from time to time, such other information
regarding the operations, business affairs and financial condition
of the Borrower or any Guarantor, or compliance with the terms of
any material loan or financing agreements as the Agent or any Bank
may reasonably request; and
(m) furnish to the Agent and its counsel promptly after
the same is available, copies of all pleadings, motions,
applications, judicial information, financial information and other
documents filed by or on behalf of the Borrower or any of the
Guarantors with the Bankruptcy Court in the Cases, or distributed
by or on behalf of the Borrower or any of the Guarantors to any
official committee appointed in the Cases.
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SECTION 5.2. CORPORATE EXISTENCE. Do or cause to be done and cause
each of the Guarantors to do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its corporate existence,
material rights, licenses, permits and franchises and comply in all material
respects with all laws and regulations applicable to it.
SECTION 5.3. INSURANCE. (a) Keep its insurable properties insured
at all times, against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies of the same or
similar size in the same or similar businesses; and maintain in full force and
effect public liability insurance against claims for personal injury or death
or property damage occurring upon, in, about or in connection with the use of
any properties owned, occupied or controlled by the Borrower or any Guarantor,
as the case may be, in such amounts and with such deductibles as are customary
with companies of the same or similar size in the same or similar businesses
and in the same geographic area; and (b) maintain such other insurance or self
insurance as may be required by law.
SECTION 5.4. OBLIGATIONS AND TAXES. With respect to the Borrower
and each Guarantor, pay all its material obligations arising after the Filing
Date promptly and in accordance with their terms and pay and discharge promptly
all material taxes, assess ments and governmental charges or levies imposed
upon it or upon its income or profits or in respect of its property arising
after the Filing Date, before the same shall become in default, as well as all
material lawful claims for labor, materials and supplies or otherwise arising
after the Filing Date which, if unpaid, might become a Lien or charge upon such
properties or any part thereof; provided, however, that the Borrower and each
Guarantor shall not be required to pay and discharge or to cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings (if the Borrower and the Guarantors shall have set aside on their
books adequate reserves therefor).
SECTION 5.5. NOTICE OF EVENT OF DEFAULT, ETC. Promptly give
to the Agent notice in writing of any Event of Default or the
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occurrence of any event or circumstance which with the passage of time or
giving of notice or both would constitute an Event of Default.
SECTION 5.6. ACCESS TO BOOKS AND RECORDS. Maintain or cause to be
maintained at all times true and complete books and records of the financial
operations of the Borrower and the Guarantors; and provide the Agent and its
representatives access to all such books and records during regular business
hours, in order that the Agent may examine and make abstracts from such books,
accounts, records and other papers for the purpose of verifying the accuracy of
the various reports delivered by the Borrower or the Guarantors to the Agent or
the Banks pursuant to this Agreement or for otherwise ascertaining compliance
with this Agreement; and at any reasonable time and from time to time during
regular business hours, upon reasonable notice, permit the Agent and any agents
or repre sentatives (including, without limitation, appraisers) thereof to
visit the properties of the Borrower and the Guarantors and to conduct
examinations of and to monitor the Collateral held by the Agent.
SECTION 5.7. BUSINESS PLAN. As soon as practicable, furnish to the
Agent all material modifications to the Borrower's business plan heretofore
furnished to the Agent, and make its senior officers available to discuss the
same with the Agent upon the Agent's reasonable request.
SECTION 5.8. MAINTENANCE OF CONCENTRATION ACCOUNT. The Borrower and
the Guarantors shall continue to maintain with the Agent the account or
accounts currently used by the Borrower and the Guarantors as their principal
concentration and disbursement account for day-to-day operations conducted by
the Borrower and the Guarantors.
SECTION 6. NEGATIVE COVENANTS
From the date hereof and for so long as any Commitment shall be in
effect or any Letter of Credit shall remain outstanding (in a face amount in
excess of the amount of cash then held in the Letter of Credit Account, or the
face amount of back-to-back letters of credit delivered, in each case pursuant
to Section
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2.2(b)) or any amount shall remain outstanding under any Note or unpaid under
this Agreement, unless the Required Banks shall otherwise consent in writing,
the Borrower and each of the Guarantors will not (and will not, subject to the
last paragraph of this Section 6, apply to the Bankruptcy Court for authority
to):
SECTION 6.1. LIENS. Incur, create, assume or suffer to exist any
Lien on any asset of the Borrower or the Guarantors, now owned or hereafter
acquired by the Borrower or any of such Guarantors, other than (i) Liens which
were existing on the Filing Date as reflected on Schedule 3.6 hereto and Liens
granted pursuant to the Existing Agreements; (ii) Liens in favor of the
Existing Lenders as adequate protection granted pursuant to the Orders or the
Cash Collateral Order, which Liens are junior to the Liens contemplated hereby
in favor of the Agent and the Banks, provided that the Interim Order and the
Final Order provide that the holder of such junior Liens shall not be permitted
to take any action to foreclose with respect to, or otherwise realize upon,
such junior Liens so long as any amounts shall remain outstanding hereunder or
under the Notes or any Commitment shall be in effect; (iii) Permitted Liens;
and (iv) Liens in favor of the Agent and the Banks.
SECTION 6.2. MERGER, ETC. Consolidate or merge with or into
another Person.
SECTION 6.3. INDEBTEDNESS. Contract, create, incur, assume or
suffer to exist any Indebtedness, except for (i) Indebtedness under this
Agreement, (ii) Indebtedness incurred prior to the Filing Date (including
existing Capitalized Leases), (iii) Indebtedness incurred subsequent to the
Filing Date secured by purchase money Liens (exclusive of Capitalized Leases)
in an aggregate amount not to exceed $5,000,000, (iv) Capitalized Leases to the
extent permitted by Section 6.4 and (v) Indebtedness arising from Investments
among the Borrower and the Guarantors that are permitted hereunder.
SECTION 6.4. CAPITAL EXPENDITURES. Make Capital Expenditures (x)
for purposes other than for restaurant development by Marvel Mania, a joint
venture in which Marvel
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Restaurant Venture Corp. is a general partner, in an aggregate amount in
excess (when added to loans or investments for such purposes permitted by
Section 6.10(iv)) of (i) $8,135,000 during the quarter ending on March 31,
1997 or (ii) $13,279,000 on a cumulative basis during the two quarters ending
June 30, 1997 or (y) for purposes that are in connection with such restaurant
development, in an aggregate amount in excess (when added to loans or
investments for such purpose permitted by Section 6.10(iv)) of (i) $4,765,000
during the quarter ending on March 31, 1997 or (ii) $8,721,000 on a cumulative
basis during the two quarters ending June 30, 1997, provided that if the
Borrower shall have formed a Subsidiary to carry on a portion of the
activities of the Marvel Studios business segment (which Subsidiary shall not
be a Guarantor), not more than $1,000,000 of the amount provided for in clause
(x) above may be expended for such Subsidiary.
SECTION 6.5. EBITDA. Permit cumulative EBITDA for each period
beginning on February 1, 1997 and ending on the dates listed below
to be less than the amount specified opposite such period:
<TABLE>
<CAPTION>
Period Ending EBITDA
------------- ------
<S> <C>
February 28, 1997 ($ 8,500,000)
March 31, 1997 ($12,000,000)
April 30, 1997 ($15,500,000)
May 31, 1997 ($19,000,000)
</TABLE>
SECTION 6.6. GUARANTEES AND OTHER LIABILITIES. Purchase or
repurchase (or agree, contingently or otherwise, so to do) the Indebtedness of,
or assume, guarantee (directly or indirectly or by an instrument having the
effect of assuring another's payment or performance of any obligation or
capability of so doing, or otherwise), endorse or otherwise become liable,
directly or indirectly, in connection with the obligations, stock or dividends
of any Person, except (i) for any guaranty of Indebtedness or other obligations
of any Borrower or Guarantor if the guarantor could have incurred such
Indebtedness or obligations under this Agreement, (ii) by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business, (iii) guarantees by the Borrower of leases of restaurant premises
entered into by Marvel Mania in an aggregate amount not in excess of $5,000,000
and (iv) as otherwise permitted under this Agreement.
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SECTION 6.7. CHAPTER 11 CLAIMS. Incur, create, assume, suffer to
exist or permit any other Super-Priority Claim which is pari passu with or
senior to the claims of the Agent and the Banks against the Borrower and the
Guarantors hereunder, except for the Carve-Out.
SECTION 6.8. DIVIDENDS; CAPITAL STOCK. Declare or pay, directly or
indirectly, any dividends or make any other distribution or payment, whether
in cash, property, securities or a combination thereof, with respect to
(whether by reduction of capital or otherwise) any shares of capital stock (or
any options, warrants, rights or other equity securities or agreements relating
to any capital stock), or set apart any sum for the aforesaid purposes,
provided that any Guarantor may pay dividends to the Borrower or to any other
Guarantor.
SECTION 6.9. TRANSACTIONS WITH AFFILIATES. Sell or transfer any
property or assets to, or otherwise engage in any other transactions with, any
of its Affiliates (other than the Borrower and the Guarantors), other than in
the ordinary course of business at prices and on terms and conditions not less
favorable to the Borrower or such Guarantor than could be obtained on an arm's-
length basis from unrelated third parties or except as disclosed in the
Disclosure Statement.
SECTION 6.10. INVESTMENTS, LOANS AND ADVANCES. Purchase, hold or
acquire any capital stock, evidences of indebtedness or other securities of,
make or permit to exist any loans or advances to, or make or permit to exist
any investment in, any other Person (all of the foregoing, "Investments"),
except for (i) ownership by the Borrower or the Guarantors of the capital stock
of each of the Subsidiaries listed on Schedule 3.5, (ii) Permitted Investments,
(iii) advances and loans among the Borrower and the Guarantors in the ordinary
course, (iv) Investments by the Borrower or any Guarantor for the purposes
described in the last sentence of the definition of the term "Capital
Expenditures" in an aggregate amount not to exceed, when added to amounts
expended for such purposes as permitted therein, the maximum amounts permitted
pursuant to Section 6.4 and (v) loans to Panini S.p.A. in an
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aggregate amount not to exceed U.S. $10,000,000 at any one time
outstanding.
SECTION 6.11. DISPOSITION OF ASSETS. Sell or otherwise dispose of
any assets (including, without limitation, the capital stock of any Subsidiary)
except for (i) sales of inventory, fixtures and equipment in the ordinary
course of business, (ii) sales or other dispositions of assets having a fair
market value not exceeding $7,500,000 in the aggregate and (iii) sales or other
dispositions of assets among the Borrower and the Guarantors.
SECTION 6.12. NATURE OF BUSINESS. Modify or alter in any material
manner the nature and type of its business as conducted at or prior to the
Filing Date or the manner in which such business is conducted (except as
required by the Bankruptcy Code). Notwithstanding anything to the contrary
contained in this Section 6, the Borrower and the Guarantors may apply to the
Bankruptcy Court for authority to enter into transactions in connection with
the consummation of the Proposed Plan described in Section 4.1(f) and, upon
entry of an order authorizing such transactions, execute and deliver agreements
evidencing (or other instruments in connection with) such transactions,
provided that such transactions are not consummated prior to the Consummation
Date.
SECTION 7. EVENTS OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. In the case of the happening
of any of the following events and the continuance thereof beyond
the applicable period of grace if any (each, an "Event of
Default"):
(a) any material representation or warranty made by the
Borrower or any Guarantor in this Agreement or in any Loan Document or in
connection with this Agreement or with the execution and delivery of the Notes
or the credit extensions hereunder or any material statement or representation
made in any report, financial statement, certificate or other document
furnished by the Borrower or any Guarantors to the Banks under or in connection
with this Agreement, shall prove to have been false or misleading in any
material respect when made or delivered; or
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(b) default shall be made in the payment of any (i)
Fees or interest on the Loans when due, and such default shall continue
unremedied for more than two (2) Business Days or (ii) principal of the
Loans or other amounts payable by the Borrower hereunder (including, without
limitation, reimbursement obligations or cash collateralization in respect of
Letters of Credit), when and as the same shall become due and payable, whether
at the due date thereof (including the Prepayment Date) or at a date fixed
for prepayment thereof or by acceleration thereof or otherwise; or
(c) default shall be made by the Borrower or any
Guarantor in the due observance or performance of any covenant,
condition or agreement contained in Section 6 hereof; or
(d) default shall be made by the Borrower or any
Guarantor in the due observance or performance of any other covenant, condition
or agreement to be observed or performed pursuant to the terms of this
Agreement or any of the other Loan Documents and such default shall continue
unremedied for more than ten (10) days; or
(e) any of the Cases shall be dismissed or converted to
a case under Chapter 7 of the Bankruptcy Code; a trustee under Chapter 7 or
Chapter 11 of the Bankruptcy Code shall be appointed in any of the Cases and
the order appointing such trustee shall not be reversed or vacated within 30
days after the entry thereof; or an application shall be filed by the Borrower
or any Guarantor for the approval of any other Super-Priority Claim (other than
the Carve-Out) in the Cases which is pari passu with or senior to the claims of
the Agent and the Banks against the Borrower or any Guarantor hereunder, or
there shall arise or be granted any such pari passu or senior Super-Priority
Claim; or
(f) the Bankruptcy Court shall enter an order or orders
granting relief from the automatic stay applicable under Section 362 of the
Bankruptcy Code to the holder or holders of any security
interest to permit foreclosure (or the granting of a deed in lieu of
foreclosure or the like) on any assets of the Borrower or any of the Guarantors
which have a value in excess of $500,000 in the aggregate; or
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(g) the Borrower or any of the Guarantors shall file
a motion or application with the Bankruptcy Court seeking to reject, pursuant
to Section 365 of the Bankruptcy Code, the exclusive license for the use of
Marvel characters heretofore granted to Toy Biz;
(h) Ronald O. Perelman or, in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee or
other personal representative and his (or any of their) Affiliates shall cease
to own, directly or indirectly, or shall no longer have the power to vote,
directly or indirectly, at least 51% of the outstanding voting stock of the
Borrower; or
(i) the Borrower or any of the Guarantors shall file a
motion or application with the Bankruptcy Court seeking to reject, pursuant to
Section 365 of the Bankruptcy Code, the exclusive license for the use of Marvel
characters heretofore granted to Toy Biz; or
(j) any material provision of any Loan Document shall,
for any reason, cease to be valid and binding on the Borrower or
any of the Guarantors, or the Borrower or any of the Guarantors
shall so assert in any pleading filed in any court; or
(k) an order of the Bankruptcy Court shall be entered
in any of the Cases of the Borrower or any of the Guarantors appointing an
examiner with enlarged powers relating to the operation of the business (powers
beyond those set forth in Section 1106(a)(3) and (4) of the Bankruptcy Code)
under Section 1106(b) of the Bankruptcy Code and such order shall not be
reversed or vacated within 30 days after the entry thereof; or
(l) an order of the Bankruptcy Court shall be entered
(i) reversing, amending, supplementing, staying for a period in excess of 10
days, vacating or otherwise modifying either of the Orders (without the prior
written consent of the Agent and the Required Banks) or (ii) terminating the
use of cash collateral by the Borrower or the Guarantors pursuant to the Cash
Collateral Order; or
(m) any judgment or order as to a post-petition
liability or debt for the payment of money in excess of $1,000,000
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shall be rendered against the Borrower or any of the Guarantors and
the enforcement thereof shall not have been stayed; or
(n) any non-monetary judgment or order with respect to
a post-petition event shall be rendered against the Borrower or any of the
Guarantors which does or would reasonably be expected to (i) cause a material
adverse change in the financial condition, business, prospects, operations or
assets of the Borrower and the Guarantors taken as a whole on a consolidated
basis, (ii) have a material adverse effect on the ability of the Borrower or
any of the Guarantors to perform their respective obligations under any Loan
Document, or (iii) have a material adverse effect on the rights and remedies of
the Agent or any Bank under any Loan Document, and there shall be any period of
10 consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(o) the Borrower or the Guarantors shall make any Pre-
Petition Payments other than as permitted under the Orders or the Cash
Collateral Order and other than in respect of pre-petition trade payables to
the extent permitted by the Bankruptcy Court; or
(p) any Termination Event described in clauses (iii) or
(iv) of the definition of such term shall have occurred and shall continue
unremedied for more than 10 days and the sum (determined as of the date of
occurrence of such Termination Event) of the Insufficiency of the Plan in
respect of which such Termination Event shall have occurred and be continuing
and the Insufficiency of any and all other Plans with respect to which such a
Termination Event (described in such clauses (iii) or (iv)) shall have occurred
and then exist is equal to or greater than $5,000,000; or
(q) (i) the Borrower or any ERISA Affiliate thereof
shall have been notified by the sponsor of a Multiemployer Plan that it has
incurred Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or
such ERISA Affiliate does not have reasonable grounds to contest such
Withdrawal Liability and is not in fact contesting such Withdrawal Liability in
a timely and appropriate manner, and (iii) the amount of such Withdrawal
Liability specified in such notice, when aggregated with all other amounts
required to be paid to Multiemployer Plans in connection
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with Withdrawal Liabilities (determined as of the date of such notification),
exceeds $5,000,000 allocable to post-petition obligations or requires payments
exceeding $500,000 per annum in excess of the annual payments made with respect
to such MultiEmployer Plans by the Borrower or such ERISA Affiliate for the
plan year immediately preceding the plan year in which such notification is
received; or
(r) the Borrower or any ERISA Affiliate thereof shall
have been notified by the sponsor of a Multiemployer Plan that such
Multiemployer Plan is in reorganization or is being terminated, within the
meaning of Title IV of ERISA, if as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and its ERISA
Affiliates to all Multiemployer Plans that are then in reorganization or being
terminated have been or will be increased over the amounts contributed to such
Multiemployer Plans for the plan years that include the date hereof by an
amount exceeding $5,000,000; or
(s) the Borrower or any ERISA Affiliate shall have
committed a failure described in Section 302(f)(1) of ERISA (other than the
failure to make any contribution accrued and unpaid as of the Filing Date) and
the amount determined under Section 302(f)(3) of ERISA is equal to or greater
than $5,000,000; or
(t) it shall be determined (whether by the Bankruptcy
Court or by any other judicial or administrative forum) that the Borrower or
any Guarantor is liable for the payment of claims arising out of any failure to
comply (or to have complied) with applicable environmental laws or regulations
the payment of which will have a material adverse effect on the financial
condition, business, properties, operations or assets of the Borrower or the
Guarantors, taken as a whole;
then, and in every such event and at any time thereafter during the continuance
of such event, and without further order of or application to the Bankruptcy
Court, the Agent may, and at the request of the Required Banks, shall, by
notice to the Borrower (with a copy to counsel for the Official Creditors'
Committee appointed in the Cases and to the United States Trustee for the
District of Delaware), take one or more of the following actions, at the same
or different times (provided, that with respect to clause (iv) below and the
enforcement of Liens or other remedies
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with respect to the Collateral under clause (v) below, the Agent shall provide
the Borrower (with a copy to counsel for the Official Creditors' Committee
appointed in the Cases and to the United States Trustee for the District of
Delaware) with five (5) Business Days' written notice prior to taking the
action contemplated thereby and provided, further, that upon receipt of notice
referred to in the immediately preceding clause with respect to the accounts
referred to in clause (iv) below, the Borrower may continue to make ordinary
course disbursements from such accounts (other than the Letter of Credit
Account) but may not withdraw or disburse any other amounts from such
accounts): (i) terminate forthwith the Total Commitment; (ii) declare the Loans
then outstanding to be forthwith due and payable, whereupon the principal of
the Loans together with accrued interest thereon and any unpaid accrued Fees
and all other liabilities of the Borrower accrued hereunder and under any other
Loan Document, shall become forthwith due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived by the Borrower and the Guarantors, anything contained herein
or in any other Loan Document to the contrary notwithstanding; (iii) require
the Borrower and the Guarantors upon demand to forthwith deposit in the Letter
of Credit Account cash in an amount equal to the sum of 105% of the then
outstanding Letters of Credit and to the extent the Borrower and the Guarantors
shall fail to furnish such funds as demanded by the Agent, the Agent shall be
authorized to debit the accounts of the Borrower and the Guarantors maintained
with the Agent in such amount; (iv) set-off amounts in the Letter of Credit
Account or any other accounts maintained with the Agent and apply such amounts
to the obligations of the Borrower and the Guarantors hereunder and in the
other Loan Documents; and (v) exercise any and all remedies under the Loan
Documents and under applicable law available to the Agent and the Banks.
SECTION 8. THE AGENT
SECTION 8.1. ADMINISTRATION BY AGENT. The general administration of
the Loan Documents shall be by the Agent. Each Bank hereby irrevocably
authorizes the Agent, at its discretion, to take or refrain from taking such
actions as agent on its behalf and to exercise or refrain from exercising such
powers under the Loan Documents and the Notes as are delegated by the terms
hereof
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or thereof, as appropriate, together with all powers reasonably incidental
thereto (including the release of Collateral in connection with any
transaction that is expressly permitted by the Loan Documents). The Agent
shall have no duties or responsibilities except as set forth in this
Agreement and the remaining Loan Documents.
SECTION 8.2. ADVANCES AND PAYMENTS
(a) On the date of each Loan, the Agent shall be
authorized (but not obligated) to advance, for the account of each of the
Banks, the amount of the Loan to be made by it in accordance with its
Commitment hereunder. Should the Agent do so, each of the Banks agrees
forthwith to reimburse the Agent in immediately available funds for the amount
so advanced on its behalf by the Agent, together with interest at the Federal
Funds Effective Rate if not so reimbursed on the date due from and including
such date but not including the date of reimbursement.
(b) Any amounts received by the Agent in connection
with this Agreement or the Notes (other than amounts to which the Agent is
entitled pursuant to Sections 2.18, 8.6, 10.5 and 10.6), the application of
which is not otherwise provided for in this Agreement shall be applied, first,
in accordance with each Bank's Commitment Percentage to pay accrued but unpaid
Commitment Fees or Letter of Credit Fees, and second, in accordance with each
Bank's Commitment Percentage to pay accrued but unpaid interest and the
principal balance outstanding on each Note and all unreimbursed Letter of
Credit drawings. All amounts to be paid to a Bank by the Agent shall be
credited to that Bank, after collection by the Agent, in immediately available
funds either by wire transfer or deposit in that Bank's correspondent account
with the Agent, as such Bank and the Agent shall from time to time agree.
SECTION 8.3. SHARING OF SETOFFS. Each Bank agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, including, but not limited to, a secured claim under
Section 506 of the Bankruptcy Code or other security or interest arising from,
or in lieu of, such secured claim and received by such Bank under any
applicable bankruptcy, insolvency or other similar law, or otherwise, obtain
payment in respect of its Loans as a result of which the unpaid
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portion of its Loans is proportionately less than the unpaid portion of
the Loans of any other Bank (a) it shall promptly purchase at par (and shall
be deemed to have thereupon purchased) from such other Bank a participation in
the Loans of such other Bank, so that the aggregate unpaid principal amount of
each Bank's Loans and its participation in Loans of the other Banks shall be
in the same proportion to the aggregate unpaid principal amount of all Loans
then outstanding as the principal amount of its Loans prior to the obtaining
of such payment was to the principal amount of all Loans outstanding prior to
the obtaining of such payment and (b) such other adjustments shall be made
from time to time as shall be equitable to ensure that the Banks share such
payment pro-rata, provided that if any such non-pro-rata payment is thereafter
recovered or otherwise set aside such purchase of participations shall be
rescinded (without interest). The Borrower expressly consents to the foregoing
arrangements and agrees that any Bank holding (or deemed to be holding) a
participation in a Loan may exercise any and all rights of banker's lien,
setoff (in each case, subject to the same notice requirements as pertain to
clause (iv) of the remedial provisions of Section 7.1) or counterclaim with
respect to any and all moneys owing by the Borrower to such Bank as fully as
if such Bank held a Note and was the original obligee thereon, in the amount
of such participation.
SECTION 8.4. AGREEMENT OF REQUIRED BANKS. Upon any occasion
requiring or permitting an approval, consent, waiver, election or other action
on the part of the Required Banks, action shall be taken by the Agent for and
on behalf or for the benefit of all Banks upon the direction of the Required
Banks, and any such action shall be binding on all Banks. No amendment,
modification, consent, or waiver shall be effective except in accordance with
the provisions of Section 10.10.
SECTION 8.5. LIABILITY OF AGENT.
(a) The Agent when acting on behalf of the Banks, may
execute any of its respective duties under this Agreement by or through any of
its respective officers, agents, and employees, and neither the Agent nor its
directors, officers, agents, employees or Affiliates shall be liable to the
Banks or any of them for any action taken or omitted to be taken in good faith,
or be respon-
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sible to the Banks or to any of them for the consequences of any oversight or
error of judgment, or for any loss, unless the same shall happen through its
gross negligence or willful misconduct. The Agent and its respective directors,
officers, agents, employees and Affiliates shall in no event be liable to the
Banks or to any of them for any action taken or omitted to be taken by them
pursuant to instructions received by them from the Required Banks or in
reliance upon the advice of counsel selected by it. Without limiting the
foregoing, neither the Agent, nor any of its respective directors, officers,
employees, agents or Affiliates shall be responsible to any Bank for the due
execution, validity, genuineness, effectiveness, sufficiency, or enforceability
of, or for any statement, warranty, or representation in, this Agreement, any
Loan Document or any related agreement, document or order, or shall be required
to ascertain or to make any inquiry concerning the performance or observance by
the Borrower of any of the terms, conditions, covenants, or agreements of this
Agreement or any of the Loan Documents.
(b) Neither the Agent nor any of its respective
directors, officers, employees, agents or Affiliates shall have any
responsibility to the Borrower or the Guarantors on account of the failure or
delay in performance or breach by any Bank or by the Borrower or the Guarantors
of any of their respective obligations under this Agreement or the Notes or any
of the Loan Documents or in connection herewith or therewith.
(c) The Agent, in its capacity as Agent hereunder,
shall be entitled to rely on any communication, instrument, or document
reasonably believed by such person to be genuine or correct and to have been
signed or sent by a person or persons believed by such person to be the proper
person or persons, and such person shall be entitled to rely on advice of legal
counsel, independent public accountants, and other professional advisers and
experts selected by such person.
SECTION 8.6. REIMBURSEMENT AND INDEMNIFICATION. Each Bank agrees
(i) to reimburse (x) the Agent for such Bank's Commitment Percentage of any
expenses and fees incurred for the benefit of the Banks under this Agreement,
the Notes and any of the Loan Docu ments, including, without limitation,
counsel fees and compensation of agents and employees paid for services
rendered on behalf of the Banks, and any other expense incurred in connection
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with the operations or enforcement thereof not reimbursed by the Borrower or
the Guarantors and (y) the Agent for such Bank's Commitment Percentage of any
expenses of the Agent incurred for the benefit of the Banks that the Borrower
has agreed to reimburse pursuant to Section 10.5 and has failed to so reimburse
and (ii) to indemnify and hold harmless the Agent and any of its directors,
officers, employees, agents or Affiliates, on demand, in the amount of its
proportionate share, from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, or
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by, or asserted against it or any of them in any way relating to or
arising out of this Agreement, the Notes or any of the Loan Documents or any
action taken or omitted by it or any of them under this Agreement, the Notes or
any of the Loan Documents to the extent not reimbursed by the Borrower or the
Guarantors (except such as shall result from their respective gross negligence
or willful misconduct).
SECTION 8.7. RIGHTS OF AGENT. It is understood and agreed that
Chase shall have the same rights and powers hereunder (including the right to
give such instructions) as the other Banks and may exercise such rights and
powers, as well as its rights and powers under other agreements and instruments
to which it is or may be party, and engage in other transactions with the
Borrower or any Guarantor, as though it were not the Agent of the Banks under
this Agreement.
SECTION 8.8. INDEPENDENT BANKS. Each Bank acknowledges that it has
decided to enter into this Agreement and to make the Loans hereunder based on
its own analysis of the transactions contemplated hereby and of the
creditworthiness of the Borrower and the Guarantors and agrees that the Agent
shall bear no responsibility therefor.
SECTION 8.9. NOTICE OF TRANSFER. The Agent may deem and treat a
Bank party to this Agreement as the owner of such Bank's portion of the Loans
for all purposes, unless and until a written notice of the assignment or
transfer thereof executed by such Bank shall have been received by the Agent.
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SECTION 8.10. SUCCESSOR AGENT. The Agent may resign at any time by giving
written notice thereof to the Banks and the Borrower. Upon any such
resignation, the Required Banks shall have the right to appoint a successor
Agent, which shall be reasonably satisfactory to the Borrower. If no successor
Agent shall have been so appointed by the Required Banks and shall have
accepted such appointment, within 30 days after the retiring Agent's giving of
notice of resignation, the retiring Agent may, on behalf of the Banks, appoint
a successor Agent, which shall be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of a least $100,000,000, which shall be reasonably
satisfactory to the Borrower. Upon the acceptance of any appointment as Agent
here under by a successor Agent, such successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement.
SECTION 9. GUARANTY
SECTION 9.1. GUARANTY
(a) Each of the Guarantors unconditionally and
irrevocably guarantees the due and punctual payment and performance by the
Borrower of the Obligations. Each of the Guarantors further agrees that the
Obligations may be extended or renewed, in whole or in part, without notice to
or further assent from it, and it will remain bound upon this guaranty
notwithstanding any extension or renewal of any of the Obligations. The
Obligations of the Guarantors shall be joint and several.
(b) Each of the Guarantors waives presentation to,
demand for payment from and protest to the Borrower or any other Guarantor, and
also waives notice of protest for nonpayment. The Obligations of the Guarantors
hereunder shall not be affected by (i) the failure of the Agent or a Bank to
assert any claim or demand or to enforce any right or remedy against the
Borrower or
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any other Guarantor under the provisions of this Agreement or any other Loan
Document or otherwise; (ii) any extension or renewal of any provision hereof or
thereof; (iii) any rescission, waiver, compromise, acceleration, amendment or
modification of any of the terms or provisions of any of the Loan Documents;
(iv) the release, exchange, waiver or foreclosure of any security held by the
Agent for the Obligations or any of them; (v) the failure of the Agent or a
Bank to exercise any right or remedy against any other Guarantor; or (vi) the
release or substitution of any Guarantor or any other Guarantor.
(c) Each of the Guarantors further agrees that this
guaranty constitutes a guaranty of performance and of payment when due and not
just of collection, and waives any right to require that any resort be had by
the Agent or a Bank to any security held for payment of the Obligations or to
any balance of any deposit, account or credit on the books of the Agent or a
Bank in favor of the Borrower or any other Guarantor, or to any other Person.
(d) Each of the Guarantors hereby waives any defense
that it might have based on a failure to remain informed of the financial
condition of the Borrower and of any other Guarantor and any circumstances
affecting the ability of the Borrower to perform under this Agreement.
(e) Each Guarantor's guaranty shall not be affected by
the genuineness, validity, regularity or enforceability of the Obligations, the
Notes or any other instrument evidencing any Obli gations, or by the existence,
validity, enforceability, perfection, or extent of any collateral therefor or
by any other circumstance relating to the Obligations which might otherwise
constitute a defense to this Guaranty. Neither of the Agent, nor any of the
Banks makes any representation or warranty in respect to any such circumstances
or shall have any duty or responsibility whatsoever to any Guarantor in respect
of the management and maintenance of the Obligations.
(f) Subject to the provisions of Section 7.1, upon the
Obligations becoming due and payable (by acceleration or otherwise), the Banks
shall be entitled to immediate payment of such Obligations by the Guarantors
upon written demand by the Agent, without further application to or order of
the Bankruptcy Court.
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SECTION 9.2. NO IMPAIRMENT OF GUARANTY. The obligations of the
Guarantors hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including, without limitation, any
claim of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense or set-off, counterclaim, recoupment or termination
whatsoever by reason of the invalidity, illegality or unenforceability of the
Obligations. Without limiting the generality of the foregoing, the obligations
of the Guarantors hereunder shall not be discharged or impaired or otherwise
affected by the failure of the Agent or a Bank to assert any claim or demand or
to enforce any remedy under this Agreement or any other agreement, by any
waiver or modification of any provision thereof, by any default, failure or
delay, willful or otherwise, in the performance of the Obligations, or by any
other act or thing or omission or delay to do any other act or thing which may
or might in any manner or to any extent vary the risk of the Guarantors or
would otherwise operate as a discharge of the Guarantors as a matter of law,
unless and until the Obligations are paid in full.
SECTION 9.3. SUBROGATION. Upon payment by any Guarantor of any sums
to the Agent or a Bank hereunder, all rights of such Guarantor against the
Borrower arising as a result thereof by way of right of subrogation or
otherwise, shall in all respects be subordinate and junior in right of payment
to the prior final and indefeasible payment in full of all the Obligations. If
any amount shall be paid to such Guarantor for the account of the Borrower,
such amount shall be held in trust for the benefit of the Agent and the Banks
and shall forthwith be paid to the Agent and the Banks to be credited and
applied to the Obligations, whether matured or unmatured.
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SECTION 10. MISCELLANEOUS
SECTION 10.1. NOTICES. Notices and other communications provided
for herein shall be in writing (including telegraphic, telex, facsimile or
cable communication) and shall be mailed, telegraphed, telexed, transmitted,
cabled or delivered to the Borrower or any Guarantor at 387 Park Avenue South,
New York, New York 10016, Attention: Chief Financial Officer and to a Bank or
the Agent to it at its address set forth on the signature pages of this
Agreement, or such other address as such party may from time to time designate
by giving written notice to the other parties hereunder. All notices and other
communications given to any party hereto in accordance with the provisions of
this Agreement shall be deemed to have been given on the fifth Business Day
after the date when sent by registered or certified mail, postage prepaid,
return receipt requested, if by mail; or when delivered to the telegraph
company, charges prepaid, if by telegram; or when receipt is acknowledged, if
by any telegraphic communications or facsimile equipment of the sender; in each
case addressed to such party as provided in this Section 10.1 or in accordance
with the latest unrevoked written direction from such party; provided, however,
that in the case of notices to the Agent notices pursuant to the preceding
sentence and pursuant to Section 2 shall be effective only when received by the
Agent.
SECTION 10.2. SURVIVAL OF AGREEMENT, REPRESENTATIONS AND
WARRANTIES, ETC. All warranties, representations and covenants made by the
Borrower or any Guarantor herein or in any certificate or other instrument
delivered by it or on its behalf in connection with this Agreement shall be
considered to have been relied upon by the Banks and shall survive the making
of the Loans herein contemplated and the issuance and delivery to the Banks of
the Notes regardless of any investigation made by any Bank or on its behalf and
shall continue in full force and effect so long as any amount due or to become
due hereunder is outstanding and unpaid and so long as the Commitments have not
been terminated. All statements in any such certificate or other instrument
shall constitute representations and warranties by the Borrower and the
Guarantors hereunder with respect to the Borrower.
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SECTION 10.3. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall be binding upon and inure to
the benefit of the Borrower, the Agent and the Banks and their respective
successors and assigns. Neither the Borrower nor any of the Guarantors may
assign or transfer any of their rights or obligations hereunder without the
prior written consent of all of the Banks. Each Bank may sell participations to
any Person in all or part of any Loan, or all or part of its Note or
Commitment, in which event, without limiting the foregoing, the provisions of
Section 2.14 shall inure to the benefit of each purchaser of a participation
(provided that such participant shall look solely to the seller of such
participation for such benefits and the Borrower's and the Guarantors'
liability, if any, under Sections 2.14 and 2.17 shall not be increased as a
result of the sale of any such participation) and the PRO RATA treatment of
payments, as described in Section 2.16, shall be determined as if such Bank had
not sold such participation. In the event any Bank shall sell any
participation, such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower and each of the Guarantors relating to
the Loans, including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement (provided that such
Bank may grant its participant the right to consent to such Bank's execution of
amendments, modifications or waivers which (i) reduce any Fees payable
hereunder to the Banks, (ii) reduce the amount of any scheduled principal
payment on any Loan or reduce the principal amount of any Loan or the rate of
interest payable hereunder or (iii) extend the maturity of the Borrower's
obligations hereunder). The sale of any such participation shall not alter the
rights and obligations of the Bank selling such participation hereunder with
respect to the Borrower.
(b) Each Bank may assign to one or more Banks or
Eligible Assignees all or a portion of its interests, rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Commitment and the same portion of the related Loans at the time owing to it
and the related Note held by it), PROVIDED, HOWEVER, that (i) other than in the
case of an assignment to a Person at least 50% owned by the assignor Bank, or
by a common parent of both, or to another Bank, the Agent and the Fronting Bank
must give their respective prior written consent, which consent will not be
unreasonably withheld, (ii) the
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aggregate amount of the Commitment and/or Loans of the assigning Bank
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Agent) shall,
unless otherwise agreed to in writing by the Borrower and the Agent, in no
event be less than $5,000,000 (or $1,000,000 in the case of an assignment
between Banks) and (iii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the Register (as
defined below), an Assignment and Acceptance with blanks appropriately
completed, together with any Note subject to such assignment and a processing
and recordation fee of $3,000 (for which the Borrower shall have no
liability). Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be within ten Business Days after the execution thereof
(unless otherwise agreed to in writing by the Agent), (A) the assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Bank hereunder
and (B) the Bank thereunder shall, to the extent provided in such Assignment
and Acceptance, be released from its obligations under this Agreement (and, in
the case of an Assignment and Acceptance covering all or the remaining portion
of an assigning Bank's rights and obligations under this Agreement, such Bank
shall cease to be a party hereto).
(c) By executing and delivering an Assignment and
Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to
and agree with each other and the other parties hereto as follows: (i) other
than the representation and warranty that it is the legal and beneficial owner
of the interest being assigned thereby free and clear of any adverse claim,
such Bank assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any of the other Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of this Agreement or any of the other Loan Documents; (ii) such Bank
assignor makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or any Guarantor or the
performance or observance by the Borrower or any Guarantor of any of its
obligations under this Agreement or any of the other Loan Documents or any
other
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instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement and the other Loan
Documents, together with copies of the financial statements referred to in
Section 3.4 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such Bank assignor or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms thereto, together with such powers
as are reasonably incidental hereof; and (vi) such assignee agrees that it will
perform in accordance with their terms all obligations that by the terms of
this Agreement are required to be performed by it as a Bank.
(d) The Agent shall maintain at its office a copy of
each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Banks and the Commitments of, and
principal amount of the Loans owing to, each Bank from time to time (the
"Register"). The entries in the Register shall be conclusive, in the absence of
manifest error, and the Borrower, the Guarantors, the Agent and the Banks shall
treat each Person the name of which is recorded in the Register as a Bank
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrower or any Bank at any reasonable time and from time
to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an assigning Bank and the assignee thereunder together with any
Note subject to such assignment and the fee payable in respect thereto, the
Agent shall, if such Assignment and Acceptance has been completed with blanks
appropriately filled, (i) accept such Assignment and Acceptance, (ii) record
the information contained therein in the Register and (iii) give prompt written
notice thereof to the Borrower (together with a copy thereof). Within five
Business Days after receipt of notice, the Borrower, at its own expense, shall
execute and deliver to the Agent in exchange for the surrendered Note a new
Note to the order
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of such assignee in an amount equal to the Commitment and/or Loans
assumed by it pursuant to such Assignment and Acceptance and, if the assigning
Bank has retained Commitments and/or Loans hereunder, a new Note to the order
of the assigning Bank in an amount equal to the Commitment and/or Loans
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of the surrendered Note. Thereafter,
such surrendered Note shall be marked canceled and returned to the Borrower.
(f) Any Bank may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
10.3, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower or any of the Guarantors
furnished to such Bank by or on behalf of the Borrower or any of the
Guarantors; provided that prior to any such disclosure, each such assignee or
participant or proposed assignee or participant shall agree in writing to be
bound by the provisions of Section 10.4.
(g) The Borrower hereby agrees, to the extent set forth
in the Commitment Letter, to actively assist and cooperate with the Agent in
the Agent's efforts to sell participations herein (as described in Section
10.3(a)) and assign to one or more Banks or Eligible Assignees a portion of its
interests, rights and obligations under this Agreement (as set forth in Section
10.3(b)).
SECTION 10.4. CONFIDENTIALITY. Each Bank agrees to keep any
information delivered or made available by the Borrower or any of the
Guarantors to it confidential from anyone other than persons employed or
retained by such Bank who are or are expected to become engaged in evaluating,
approving, structuring or administering the Loans; PROVIDED that nothing herein
shall prevent any Bank from disclosing such information (i) to any other Bank,
(ii) to any other person if reasonably incidental to the administration of the
Loans, (iii) upon the order of any court or administrative agency, (iv) upon
the request or demand of any regulatory agency or authority, (v) which has been
publicly disclosed other than as a result of a disclosure by the Agent or any
Bank which is not permitted by this Agreement, (vi) in
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connection with any litigation to which the Agent, any Bank, or their
respective Affiliates may be a party to the extent reasonably required, (vii)
to the extent reasonably required in connection with the exercise of any
remedy hereunder, (viii) to such Bank's legal counsel and independent
auditors, and (ix) to any actual or proposed participant or assignee of all or
part of its rights hereunder subject to the proviso in Section 10.3(f).
SECTION 10.5. EXPENSES. Whether or not the transactions hereby
contemplated shall be consummated, the Borrower and the Guarantors agree to
pay all reasonable out-of-pocket expenses incurred by the Agent (including but
not limited to the reasonable fees and disbursements of Zalkin, Rodin &
Goodman LLP, special counsel for the Agent, any other counsel that the Agent
shall retain and any internal or third-party consultants and auditors advising
the Agent and Chase Securities Inc.) in connection with the preparation,
execution, delivery and administration of this Agreement, the Notes and the
other Loan Documents, the making of the Loans and the issuance of the Letters
of Credit, the syndication of the transactions contemplated hereby, the
reasonable and customary costs, fees and expenses of the Agent in connection
with its monthly and other periodic field audits, monitoring of assets and
publicity expenses, and, following the occurrence of an Event of Default, all
reasonable out-of-pocket expenses incurred by the Banks and the Agent in the
enforcement or protection of the rights of any one or more of the Banks or the
Agent in connection with this Agreement, the Notes or the other Loan
Documents, including but not limited to the reasonable fees and disbursements
of any counsel for the Banks or the Agent. Such payments shall be made on the
date of the Interim Order and thereafter on demand upon delivery of a
statement setting forth such costs and expenses. Whether or not the
transactions hereby contemplated shall be consummated, the Borrower and the
Guarantors agree to reimburse the Agent and Chase Securities Inc. for the
expenses set forth in the Commitment Letter and the reimbursement provisions
thereof are hereby incorporated herein by reference. The obligations of the
Borrower and the Guarantors under this Section shall survive the termination
of this Agreement and/or the payment of the Loans.
SECTION 10.6. INDEMNITY. The Borrower and each of the
Guarantors agree to indemnify and hold harmless the Agent, Chase
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<PAGE>
Securities Inc. and the Banks and their directors, officers, employees, agents
and Affiliates (each an "Indemnified Party") from and against any and all
expenses, losses, claims, damages and liabilities incurred by such Indemnified
Party arising out of claims made by any Person in any way relating to the
transactions contemplated hereby, but excluding therefrom all expenses, losses,
claims, damages, and liabilities arising out of or resulting from the gross
negligence or willful misconduct of such Indemnified Party.
SECTION 10.7. CHOICE OF LAW. THIS AGREEMENT, THE NOTES AND
THE OTHER LOAN DOCUMENTS SHALL IN ALL RESPECTS BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE.
SECTION 10.8. NO WAIVER. No failure on the part of the Agent or any
of the Banks to exercise, and no delay in exercising, any right, power or
remedy hereunder or under the Notes or any of the other Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. All remedies hereunder are
cumulative and are not exclusive of any other remedies provided by law.
SECTION 10.9. EXTENSION OF MATURITY. Should any payment of
principal of or interest on the Notes or any other amount due hereunder become
due and payable on a day other than a Business Day, the maturity thereof shall
be extended to the next succeeding Business Day and, in the case of principal,
interest shall be payable thereon at the rate herein specified during such
extension.
SECTION 10.10. AMENDMENTS, ETC.
(a) No modification, amendment or waiver of any
provision of this Agreement, the Notes or the Security and Pledge Agreement,
and no consent to any departure by the Borrower or any Guarantor therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Banks, and
83
<PAGE>
then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given; provided, however, that no such
modification or amendment shall without the written consent of the Bank
affected thereby (x) increase the Commitment of a Bank (it being understood
that a waiver of an Event of Default shall not constitute an increase in the
Commitment of a Bank), or (y) reduce the principal amount of any Loan or the
rate of interest payable thereon, or extend any date for the payment of
interest hereunder or reduce any Fees payable hereunder or extend the final
maturity of the Borrower's obligations hereunder; and, provided, further, that
no such modification or amendment shall without the written consent of (A) all
of the Banks (i) amend or modify any provision of this Agreement which
provides for the unanimous consent or approval of the Banks, (ii) amend this
Section 10.10 or the definition of Required Banks or (iii) amend or modify the
Super-Priority Claim status of the Banks contemplated by Section 2.22 or (B)
Banks holding Loans representing at least 85% of the aggregate principal
amount of the Loans outstanding, or if no Loans are outstanding, Banks having
Commitments representing at least 85% of the Total Commitment, release all or
any substantial portion of the Liens granted to the Agent hereunder, under the
Orders or under any other Loan Document, or release any Guarantor. No such
amendment or modification may adversely affect the rights and obligations of
the Agent or any Fronting Bank hereunder without its prior written consent. No
notice to or demand on the Borrower or any Guarantor shall entitle the
Borrower or any Guarantor to any other or further notice or demand in the
same, similar or other circumstances. Each holder of a Note shall be bound by
any amendment, modification, waiver or consent authorized as provided herein,
whether or not a Note shall have been marked to indicate such amendment,
modification, waiver or consent and any consent by a Bank, or any holder of a
Note, shall bind any Person subsequently acquiring a Note, whether or not a
Note is so marked. No amendment to this Agreement shall be effective against
the Borrower or any Guarantor unless signed by the Borrower or such Guarantor,
as the case may be.
(b) Notwithstanding anything to the contrary contained
in Section 10.10(a), in the event that the Borrower requests that this
Agreement be modified or amended in a manner which would require the unanimous
consent of all of the Banks (or the consent described in clause (B) of the
first sentence of Section 10.10(a))
84
<PAGE>
and such modification or amendment is agreed to by the Supermajority Banks (as
hereinafter defined), then with the consent of the Borrower and the
Super-majority Banks, the Borrower and the Super-majority Banks shall be
permitted to amend the Agreement without the consent of the Bank or Banks which
did not agree to the modification or amendment requested by the Borrower (such
Bank or Banks, collectively the "Minority Banks") to provide for (w) the
termination of the Commitment of each of the Minority Banks, (x) the addition
to this Agreement of one or more other financial institutions (each of which
shall be an Eligible Assignee), or an increase in the Commitment of one or more
of the Super-majority Banks, so that the Total Commitment after giving effect
to such amendment shall be in the same amount as the Total Commitment
immediately before giving effect to such amendment, (y) if any Loans are
outstanding at the time of such amendment, the making of such additional Loans
by such new financial institutions or Super-majority Bank or Banks, as the
case may be, as may be necessary to repay in full the outstanding Loans of the
Minority Banks immediately before giving effect to such amendment and (z) such
other modifications to this Agreement as may be appropriate. As used herein,
the term "Super-majority Banks" shall mean, at any time, Banks, including
Chase, holding Loans representing at least 66-2/3% of the aggregate principal
amount of the Loans outstanding, or if no Loans are outstanding, Banks having
Commitments representing at least 66-2/3% of the Total Commitment.
SECTION 10.11. SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
SECTION 10.12. HEADINGS. Section headings used herein are
for convenience only and are not to affect the construction of or
be taken into consideration in interpreting this Agreement.
SECTION 10.13. EXECUTION IN COUNTERPARTS. This Agreement may
be executed in any number of counterparts, each of which shall
85
<PAGE>
constitute an original, but all of which taken together shall
constitute one and the same instrument.
SECTION 10.14. PRIOR AGREEMENTS. This Agreement represents the
entire agreement of the parties with regard to the subject matter hereof and
the terms of any letters and other documentation entered into between the
Borrower or a Guarantor and any Bank or the Agent prior to the execution of
this Agreement which relate to Loans to be made hereunder shall be replaced by
the terms of this Agreement (except as otherwise expressly provided herein with
respect to the Commitment Letter and the Fee Letter, including without
limitation the Borrower's agreement to actively assist the Agent in the
syndication of the transactions contemplated hereby referred to in Section
10.3(g) and including also the provisions of Section 2.21).
SECTION 10.15. FURTHER ASSURANCES. Whenever and so often as
reasonably requested by the Agent, the Borrower and the Guarantors will
promptly execute and deliver or cause to be executed and delivered all such
other and further instruments, documents or assurances, and promptly do or
cause to be done all such other and further things as may be necessary and
reasonably required in order to further and more fully vest in the Agent all
rights, interests, powers, benefits, privileges and advantages conferred or
intended to be conferred by this Agreement and the other Loan Documents.
SECTION 10.16. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
GUARANTORS, THE AGENT AND EACH BANK HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
86
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and the year first written.
MARVEL ENTERTAINMENT GROUP, INC.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
GUARANTORS:
THE ASHER CANDY COMPANY
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
FLEER CORP.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
FRANK H. FLEER CORP.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
HEROES WORLD DISTRIBUTION, INC.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
MALIBU COMICS ENTERTAINMENT, INC.
87
<PAGE>
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
MARVEL CHARACTERS, INC.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
MARVEL DIRECT MARKETING INC.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
SKYBOX INTERNATIONAL INC.
By:/s/ Steven Isko
--------------------------------
Title: Vice President and Secretary
THE CHASE MANHATTAN BANK,
INDIVIDUALLY AND AS AGENT
By:/s/ Jane E. Jacobs
--------------------------------
Title: Vice President
270 Park Avenue
New York, New York 10017
88
<PAGE>
ANNEX A TO
REVOLVING CREDIT AND
GUARANTY AGREEMENT
ANNEX A
TO
REVOLVING CREDIT AND GUARANTY AGREEMENT
DATED AS OF DECEMBER 27, 1996
-----------------------------
Commitment Commitment
Bank Amount Percentage
- ---- -------------- ------------
The Chase Manhattan Bank $100,000,000 100.00%
89
<PAGE>
EXHIBIT 10.39
FIRST AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT
FIRST AMENDMENT, dated as of January 24, 1997 (the "Amendment"), to
the REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of December 27, 1996,
among MARVEL ENTERTAINMENT GROUP, INC., a Delaware corporation (the
"Borrower"), as a debtor and debtor-in- possession under Chapter 11 of the
Bankruptcy Code, the Guarantors named therein (the "Guarantors"), as debtors
and debtors-in-possession under Chapter 11 of the Bankruptcy Code, THE CHASE
MANHATTAN BANK, a New York banking corporation ("Chase"), each of the other
financial institutions party thereto (together with Chase, the "Banks") and THE
CHASE MANHATTAN BANK, as Agent for the Banks (in such capacity, the "Agent"):
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent are
parties to that certain Revolving Credit and Guaranty Agreement, dated as of
December 27, 1996 (as the same may be amended, modified or supplemented from
time to time, the "Credit Agreement"); and
WHEREAS, the parties hereto have agreed that from and after the
Effective Date (as hereinafter defined) of this Amendment, the Credit Agreement
shall be amended subject to and upon the terms and conditions set forth herein.
NOW, THEREFORE, it is agreed:
1. As used herein all terms which are defined in the
Credit Agreement shall have the same meanings herein.
2. Section 7.1 of the Credit Agreement is hereby
amended by deleting clause (h) set forth therein in its entirety and inserting
in lieu thereof the following new clause (h):
"(h) (x) Any Person, other than Ronald
O. Perelman or, in the event of his
incompetence or death, his estate, heirs,
executor, administrator, committee or other
personal representative and his (or any of
<PAGE>
their) Affiliates (collectively, "ROP"), shall
"control" the Borrower, as such term is used in Rule
405 promulgated under the Securities Act of 1933, as
amended, or (y) in the event that ROP ceases to so
"control" the Borrower, any other Person shall own more
than 25% of the issued and outstanding voting stock of
the Borrower (except any stock which has the right to
vote only upon the happening of a contingency); or"
3. Section 7.1 of the Credit Agreement is hereby
amended by deleting clause (i) set forth therein in its entirety and inserting
in lieu thereof the following new clause (i):
"(i) the Bankruptcy Court shall enter an
order authorizing or directing the rejection by the
Borrower or any of the Guarantors, pursuant to Section
365 of the Bankruptcy Code, of the exclusive license
for the use of Marvel characters heretofore granted to
Toy Biz; or"
4. Section 7.1 of the Credit Agreement is hereby
amended by deleting clause (g) set forth therein in its entirety and inserting
in lieu thereof the following:
"(g) Intentionally Omitted"
5. This Amendment shall not become effective (the
"Effective Date") until the date on which this Amendment shall have been
executed by the Borrower, the Guarantors, Chase and the Agent, and the Agent
shall have received evidence satisfactory to it of such execution.
6. The Borrower agrees that its obligations set forth
in Section 10.5 of the Credit Agreement shall extend to the preparation,
execution and delivery of this Amendment.
2
<PAGE>
7. This Amendment shall be limited precisely as written
and shall not be deemed (a) to be a consent granted pursuant to, or a waiver or
modification of, any other term or condition of the Credit Agreement or any of
the instruments or agreements referred to therein or (b) to prejudice any right
or rights which the Agent or the Banks may now have or have in the future under
or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein. Whenever the Credit Agreement is referred to in
the Credit Agreement or any of the instruments, agreements or other documents
or papers executed or delivered in connection therewith, such reference shall
be deemed to mean the Credit Agreement as modified by this Amendment.
8. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
9. This Amendment shall in all respects be construed in
accordance with and governed by the laws of the State of New York applicable to
contracts made and to be performed wholly within such State.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and the year first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By:/s/ Bobby G. Jenkins
--------------------------------
Title: Chief Financial Officer
GUARANTORS:
THE ASHER CANDY COMPANY
3
<PAGE>
FLEER CORP.
FRANK H. FLEER CORP.
HEROES WORLD DISTRIBUTION, INC.
MALIBU COMICS ENTERTAINMENT, INC.
MARVEL CHARACTERS, INC.
MARVEL DIRECT MARKETING INC.
SKYBOX INTERNATIONAL INC.
By:/s/ Steven Isko
-------------------------------
Title: Vice President
THE CHASE MANHATTAN BANK,
INDIVIDUALLY AND AS AGENT
By:/s/ illegible
---------------------------------
Title: Managing Director
270 Park Avenue
New York, New York 10017
4
<PAGE>
EXHIBIT 10.40
SECOND AMENDMENT TO REVOLVING CREDIT AND GUARANTY AGREEMENT
SECOND AMENDMENT, dated as of February 11, 1997 (the "Amendment"), to
the REVOLVING CREDIT AND GUARANTY AGREEMENT dated as of December 27, 1996 among
MARVEL ENTERTAINMENT GROUP, INC., a Delaware corporation (the "Borrower"), as a
debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code, the
Guarantors named therein (the "Guarantors"), as debtors and
debtors-in-possession under Chapter 11 of the Bankruptcy Code, THE CHASE
MANHATTAN BANK, a New York banking corporation ("Chase"), each of the other
financial institutions party thereto (together with Chase, the "Banks") and THE
CHASE MANHATTAN BANK, as Agent for the Banks (in such capacity, the "Agent"):
W I T N E S S E T H:
WHEREAS, the Borrower, the Guarantors, Chase and the Agent are
parties to that certain Revolving Credit and Guaranty Agreement, dated as of
December 27, 1996 (as heretofore supplemented by that certain Supplementary
Letter and that certain Second Supplementary Letter each dated as of December
27, 1996 and as heretofore amended by that certain First Amendment to Revolving
Credit and Guaranty Agreement dated as of January 24, 1997, and as the same may
be further amended, modified or supplemented from time to time, the "Credit
Agreement"); and
WHEREAS, Section 10.3(b) of the Credit Agreement provides that each
Bank may assign to one or more Eligible Assignees all or a portion of its
interests, rights and obligations under the Credit Agreement (including,
without limitation, all or a portion of its Commitment and the same portion of
the related Loans at the time owing to it and the related Note held by it) by
executing and delivering with such Eligible Assignee an Assignment and
Acceptance in substantially the form of Exhibit E to the Credit Agreement (a
copy of which is annexed hereto as Schedule I); and
WHEREAS, Chase wishes to assign to each of the financial institutions
(other than Chase) that is named on Annex A hereto (such financial institutions
other than Chase, collectively the "New Banks"), and each of the New Banks
wishes to assume, a pro rata portion of Chase's interests, rights and
obligations under the Credit Agreement; and
<PAGE>
WHEREAS, the Borrower, the Guarantors, Chase, the New Banks and the
Agent have determined that the execution and delivery of this Amendment to
effectuate a reallocation of the Total Commitment among Chase and the New Banks
will be more expeditious and administratively efficient than the execution and
delivery of a separate Assignment and Acceptance between Chase and each of the
New Banks; and
WHEREAS, upon the occurrence of the Effective Date (as hereinafter
defined) of this Amendment, each of the New Banks shall become a party to the
Credit Agreement as a Bank and shall have the rights and obligations of a Bank
thereunder and the respective Commitment of Chase and each of the New Banks
under the Credit Agreement shall be in the amount set forth opposite its name
on Annex A hereto, as the same may be reduced from time to time pursuant to
Section 2.9 of the Credit Agreement;
NOW, THEREFORE, it is agreed:
1. As used herein all terms that are defined in the
Credit Agreement shall have the same meanings herein.
2. Annex A to the Credit Agreement is hereby replaced
in its entirety by Annex A hereto.
3. The signature pages of the Credit Agreement are
hereby amended to conform to the signature pages hereto.
4. By its execution and delivery hereof, Chase shall be
deemed to have made each of the statements set forth in clauses (i) and (ii) of
paragraph 2 of the Assignment and Acceptance as if such statements were fully
set forth herein at length.
5. By its execution and delivery hereof, each of the
New Banks shall be deemed to have made each of the statements set forth in
clauses (i), (ii), (iii), (iv) and (v) of paragraph 3 of
2
<PAGE>
the Assignment and Acceptance as if such statements were fully set
forth herein at length.
6. On the Effective Date, (i) each New Bank will pay to
the Agent (for the account of Chase) such amount as represents such New Bank's
pro rata portion of the aggregate principal amount of
the Loans, if any, that are outstanding on the Effective Date and such New
Bank's pro rata portion of the aggregate amount of the then unreimbursed
drafts, if any, that were theretofore drawn under Letters of Credit, and (ii)
the Agent shall pay to each of the New Banks such fees as have been previously
agreed to between the Agent and such New Bank. Promptly following the
occurrence of the Effective Date, the Borrower will execute and deliver to the
Agent in exchange for the Note presently held by Chase a new Note payable to
the order of each of the Banks in a principal amount equal to such Bank's
Commitment reflected on Annex A hereto.
7. By its execution and delivery hereof, each of the
New Banks (i) agrees that any interest, Commitment Fees and Letter of Credit
Fees (pursuant to Sections 2.7, 2.19 and 2.20 of the Credit Agreement) that
accrued prior to the Effective Date shall not be payable to such New Bank and
authorizes and directs the Agent to deduct such amounts from any interest,
Commitment Fees or Letter of Credit Fees paid after the date hereof and to pay
such amounts to Chase (it being understood that interest, Commitment Fees and
Letter of Credit Fees respecting the Commitment of Chase and each New Bank
which accrue on or after the Effective Date shall be payable to such Bank in
accordance with its Commitment), (ii) acknowledges that if such New Bank is
organized under the laws of a jurisdiction outside of the United States, such
New Bank has heretofore furnished to the Agent the forms prescribed by the
Internal Revenue Service of the United States certifying as to such New Bank's
exemption from United States withholding taxes with respect to any payments to
be made to such New Bank under the Credit Agreement (or such other documents as
are necessary to indicate that all such payments are subject to such tax at a
rate reduced by an applicable tax treaty) and (iii) acknowledges that such New
Bank has heretofore supplied to the Agent the information
3
<PAGE>
requested on the administrative questionnaire which is attached to
the Assignment and Acceptance as Exhibit A.
8. This Amendment shall not become effective (the
"Effective Date") until (i) the date on which this Amendment shall have been
executed by the Borrower, the Guarantors, Chase, the New Banks and the Agent,
and the Agent shall have received evidence satisfactory to it of such execution
and (ii) the payments provided for in clauses (i) and (ii) of paragraph 6
hereof shall have been made.
9. The Borrower agrees that its obligations set forth
in Section 10.5 of the Credit Agreement shall extend to the preparation,
execution and delivery of this Amendment.
10. This Amendment shall be limited precisely as
written and shall not be deemed (a) to be a consent granted pursuant to, or a
waiver or modification of, any other term or condition of the Credit Agreement
or any of the instruments or agreements referred to therein or (b) to prejudice
any right or rights which the Agent or the Banks may now have or have in the
future under or in connection with the Credit Agreement or any of the
instruments or agreements referred to therein. Whenever the Credit Agreement is
referred to in the Credit Agreement or any of the instruments, agreements or
other documents or papers executed or delivered in connection therewith, such
reference shall be deemed to mean the Credit Agreement as modified by this
Amendment.
11. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
12. This Amendment shall in all respects be construed
in accordance with and governed by the laws of the State of New York applicable
to contracts made and to be performed wholly within such State.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the day and the year first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By:/s/ Bobby G. Jenkins
----------------------------
Title: Chief Financial Officer
GUARANTORS:
THE ASHER CANDY COMPANY
FLEER CORP.
FRANK H. FLEER CORP.
HEROES WORLD DISTRIBUTION, INC.
MALIBU COMICS ENTERTAINMENT, INC.
MARVEL CHARACTERS, INC.
MARVEL DIRECT MARKETING INC.
SKYBOX INTERNATIONAL INC.
By:/s/ Bobby G. Jenkins
-----------------------------
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK,
INDIVIDUALLY AND AS AGENT
By:/s/ Susan E. Atkins
-----------------------------
Title: Vice President
270 Park Avenue
New York, New York 10017
NEW BANKS:
LEHMAN COMMERCIAL PAPER INC.
5
<PAGE>
By:/s/ Dennis J. Dee
--------------------------------
Title: Authorized Signatory
3 World Financial Center
New York, New York 10285-1000
THE TORONTO-DOMINION BANK
By:/s/ Kimberly Burleson
---------------------------------
Title: Manager Credit Administration
909 Fannin Street, Suite 1700
Houston, Texas 77010
THE FIRST NATIONAL BANK OF BOSTON
By:/s/ illegible
---------------------------------
Title: Director
100 Federal Street
Boston, Massachusetts 02106
CREDIT SUISSE FIRST BOSTON
By:/s/ illegible /s/ illegible
---------------------------------
Title: Director Director
Eleven Madison Avenue
New York, New York 10010-3629
BANK OF AMERICA ILLINOIS
By:/s/ L. Dustin Vincent
---------------------------------
Title: Managing Director
231 South LaSalle Street
6
<PAGE>
Chicago, Illinois 60697
CIBC, INC.
By:/s/ Douglas J. Smith
---------------------------------
Title: Vice President
425 Lexington Avenue
New York, New York 10017
CREDIT LYONNAIS, NEW YORK BRANCH
By:/s/ Alan Sidrane
---------------------------------
Title: First Vice President
1301 Avenue of the Americas
New York, New York 10019-6022
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By:/s/ Paul B. Clifford
---------------------------------
Title: Deputy General Manager
350 South Grand Avenue, Suite 3000
Los Angeles, California 90071
THE NIPPON CREDIT BANK, LTD.
By:/s/ Yoshihide Watanabe
---------------------------------
Title: Vice President and Manager
245 Park Avenue, 30th Floor
New York, New York 10167
THE SUMITOMO BANK, LIMITED
7
<PAGE>
By:/s/ John C. Kissinger
---------------------------------
Title: Joint General Manager
277 Park Avenue
New York, New York 10172
8
<PAGE>
ANNEX A TO
SECOND AMENDMENT
ANNEX A
to
REVOLVING CREDIT AND GUARANTY AGREEMENT
Dated as of December 27, 1996, as amended
COMMITMENT COMMITMENT
BANK AMOUNT PERCENTAGE
- ---- ---------- -----------
The Chase Manhattan Bank $25,000,000 25.0000%
Lehman Commercial Paper Inc. $13,500,000 13.5000%
The Toronto-Dominion Bank $13,500,000 13.5000%
Cayman Islands Branch
The First National Bank of Boston $10,000,000 10.0000%
Credit Suisse First Boston $10,000,000 10.0000%
Bank of America Illinois $5,000,000 5.0000%
CIBC, Inc. $5,000,000 5.0000%
Credit Lyonnais $5,000,000 5.0000%
The Long-Term Credit Bank of $5,000,000 5.0000%
Japan, Ltd., Los Angeles Agency
The Nippon Credit Bank, Ltd. $5,000,000 5.0000%
The Sumitomo Bank, Limited $3,000,000 3.0000%
------------ ----------
Total $100,000,000 100.0000%
============ ==========
<PAGE>
EXHIBIT 21
Subsidaries
- -----------
Heroes World Distribution, Inc.
MRV, Inc.
Marvel Direct Marketing, Inc.
Marvel Characters Inc.
Welsh Publishing Group, Inc.
Marvel Restaurant Venture Corp.
M Restaurant Venture (50% general partnership interest)
Malibu Comics Entertainment Inc.
WG Corp.
Panini S.p.A.
Panini Verlags GMBH
Panini S.A.
Les Editions Recreatris
Panini Nederland B.V.
Panini Canada Ltd.
Panini Brasil S/A
Panini Publishing Ltd.
Panini Stickers Ltd.
Marvel Comics Ltd.
Panini Publishing Services
Adespan U.K. Ltd.
Panini Licensing North America Inc.
Panini Ireland Ltd.
Panini Espana SA
Panini U.S.A. Inc.
The Emerald Foundation
Panini Portugal Editores LDA
Fleer Corp.
Dr. Torrents S.A. (50% joint venture)
Fleer Limited (50% joint venture)
Fleer Espanol
The Asher Candy Company
SkyBox International Inc.
Impel Movieline Inc.
SkyBox Management Inc.
Frank H. Fleer Corp.
Fleer Sales Corp.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-90302) of Marvel Entertainment Group, Inc. and the related
Prospectus and the Registration Statement (Form S-8 No. 33-94448) pertaining
to the Marvel Entertainment Group, Inc. Amended and Restated Stock Option
Plan, of our report dated March 28, 1997 with respect to the consolidated
statements and schedule of Marvel Entertainment Group, Inc., included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
New York, New York
April 11, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ Ronald O. Perelman
----------------------------
Ronald O. Perelman
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ William C. Bevins
-------------------------
William C. Bevins
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ Donald G. Drapkin
-------------------------------
Donald G. Drapkin
<PAGE>
EXHIBIT 24.4
POWER OF ATTORNEY
------------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ Michael Fuchs
--------------------------
Michael Fuchs
<PAGE>
EXHIBIT 24.5
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 24th day of March, 1997.
/s/ Frank Gifford
-----------------------------
Frank Gifford
<PAGE>
EXHIBIT 24.6
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ E. Gregory Hookstratten
-------------------------------
E. Gregory Hookstratten
<PAGE>
EXHIBIT 24.7
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 20th day of March, 1997.
/s/ Morton Janklow
---------------------------
Morton Janklow
<PAGE>
EXHIBIT 24.8
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Paul E. Shapiro, Steven R. Isko and Bobby G.
Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form
10-K for the year ended December 31, 1996 under the Securities Exchange Act of
1934, as amended, including, without limiting the generality of the foregoing,
to sign the Form 10-K in the name and on behalf of the Corporation or on
behalf of the undersigned as a director or officer of the Corporation, and any
amendments to the Form 10-K and any instrument, contract, document or other
writing, of or in connection with the Form 10-K or amendments thereto, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, including this power of attorney, with the Securities and Exchange
Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorneys-in-fact and agents, each
acting alone, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, each
acting alone, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 31st day of March, 1997.
/s/ Quincy Jones
---------------------------------
Quincy Jones
<PAGE>
EXHIBIT 24.9
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 20th day of March, 1997.
/s/ Stan Lee
--------------------------
Stan Lee
<PAGE>
EXHIBIT 24.10
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 27th day of March, 1997.
/s/ Scott C. Marden
------------------------
Scott C. Marden
<PAGE>
EXHIBIT 24.11
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 27th day of March, 1997.
/s/ Scott M. Sassa
--------------------------
Scott M. Sassa
<PAGE>
EXHIBIT 24.12
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ David J. Schreff
-------------------------
David J. Schreff
<PAGE>
EXHIBIT 24.13
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ Terry C. Stewart
--------------------------
Terry Stewart
<PAGE>
EXHIBIT 24.14
POWER OF ATTORNEY
-----------------
KNOWN ALL MEN BY THESE PRESENTS, that the under-
signed hereby constitutes and appoints each of Paul E. Shapiro, Steven R. Isko
and Bobby G. Jenkins or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities, in connection with the
MARVEL ENTERTAINMENT GROUP, INC. (the "Corporation") Annual Report on Form 10-K
for the year ended December 31, 1996 under the Securities Exchange Act of 1934,
as amended, including, without limiting the generality of the foregoing, to
sign the Form 10-K in the name and on behalf of the Corporation or on behalf of
the undersigned as a director or officer of the Corporation, and any amendments
to the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed
these presents this 31st day of March, 1997.
/s/ Kenneth Ziffren
----------------------
Kenneth Ziffren
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Marvel
Entertainment Group, Inc. 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 25
<SECURITIES> 0
<RECEIVABLES> 275
<ALLOWANCES> 46
<INVENTORY> 78
<CURRENT-ASSETS> 400
<PP&E> 111
<DEPRECIATION> 32
<TOTAL-ASSETS> 844
<CURRENT-LIABILITIES> 347
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> (257)
<TOTAL-LIABILITY-AND-EQUITY> 844
<SALES> 746
<TOTAL-REVENUES> 746
<CGS> 536
<TOTAL-COSTS> 536
<OTHER-EXPENSES> 595
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> (431)
<INCOME-TAX> 22
<INCOME-CONTINUING> (464)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (464)
<EPS-PRIMARY> (4.56)
<EPS-DILUTED> 0
</TABLE>
