- ------------------------------------------------------------------------------
As filed with the Securities and Exchange Commission on July 20, 1999
Registration Statement No. 333-78143
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3 AND FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MARVEL ENTERPRISES, INC.
MARVEL ENTERPRISES, INC.
MEI HOLDING COMPANY F CORP.
MEI HOLDING COMPANY S CORP.
MRV, INC.
MARVEL CHARACTERS, INC.
MARVEL ENTERTAINMENT GROUP, INC.
MARVEL RESTAURANT VENTURE CORP.
(Exact Name of Registrants as Specified in their Charters)
<TABLE>
<S> <C> <C>
Delaware 2721, 3942 13-3711775
Delaware 2721, 3942 23-0586080
Delaware 2721, 3942 56-1684126
Delaware 2721, 3942 13-3721470
Delaware 2721, 3942 13-3841782
Delaware 2721, 3942 94-3024816
Delaware 2721, 3942 13-3812574
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
c/o Marvel Enterprises, Inc.
387 Park Avenue South
New York, New York 10016
(212) 696-0808
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrants' Principal Executive Offices)
F. Peter Cuneo
President and Chief Executive Officer
Marvel Enterprises, Inc.
387 Park Avenue South
New York, New York 10016
(212) 696-0808
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------
copy to:
John N. Turitzin, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-7000
Approximate date of commencement of proposed sale of the securities
to public: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered in connection with
dividend or interest reinvestment plans, check the following box. [X]
The registrants hereby amend this registration statement on such date
or dates as may be necessary to delay its effective date until the registrants
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
824915.10
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EXPLANATORY NOTE
This Registration Statement contains two prospectuses. The first
prospectus, which immediately follows this paragraph, relates to the exchange
offer, as explained below. The second prospectus, which follows the first
prospectus, relates to certain market-making activities with respect to the
Exchange Notes which may, from time to time, be carried out by Morgan Stanley &
Co. Incorporated.
824915.10
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The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 20, 1999
PROSPECTUS
$250,000,000
Offer to Exchange
12% Senior Notes Due 2009
which have been registered under the
Securities Act of 1933
for any and all outstanding
12% Senior Notes Due 2009
of
MARVEL ENTERPRISES, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON AUGUST 20, 1999, UNLESS EXTENDED
This Prospectus and the accompanying Letter of Transmittal relate to
the proposed offer by Marvel Enterprises, Inc. (the "Company") to exchange up to
$250,000,000 aggregate principal amount of its new 12% notes due 2009 for any
and all of its outstanding 12% notes due 2009 (the "Exchange Offer"). The
outstanding notes, which we refer to as the "Restricted Notes," have certain
transfer restrictions. The offer of the new notes, which we refer to as the
"Exchange Notes," has been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and, therefore, the Exchange Notes will not have
those restrictions. The Exchange Notes will be identical to the Restricted Notes
in all other material respects, and will be issued under the same indenture that
governs the Restricted Notes. The Exchange Notes and the Restricted Notes
together are referred to as the "Notes." See "Description of the Notes."
We are making the Exchange Offer in order to satisfy certain of our
obligations under the registration rights agreement that we executed in
connection with the sale of the Restricted Notes. Upon completion of the
Exchange Offer, we expect to have no further obligations to any of our
noteholders under the registration rights agreement, except under certain
limited circumstances.
o The Exchange Offer expires at 5:00 p.m., New York City
time, on August 20, 1999, unless extended.
o All Restricted Notes that are tendered and not withdrawn
before the expiration of the Exchange Offer will be
exchanged promptly upon consummation of the Exchange Offer.
o There should be no United States federal income tax
consequences to holders of Restricted Notes who exchange
Restricted Notes for Exchange Notes pursuant to the
Exchange Offer.
o Holders of Restricted Notes do not have any appraisal or
dissenters' rights in connection with the Exchange Offer.
Restricted Notes not exchanged in the Exchange Offer will
remain outstanding under the indenture under which they
were issued and will be to subject to certain transfer
restrictions.
o The Company does not intend to apply for listing
of the Exchange Notes on any securities exchange or to
arrange for them to be quoted on any quotation system.
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Each holder of Restricted Notes wishing to accept the Exchange Offer
must deliver the Restricted Notes to be exchanged, together with the Letter of
Transmittal that accompanies this Prospectus and any other required
documentation, to the exchange agent identified in this Prospectus.
Alternatively, you may effect a tender of Restricted Notes by book-entry
transfer into the exchange agent's account at The Depository Trust Company. All
deliveries are at the risk of the holder. You can find detailed instructions
concerning delivery under "The Exchange Offer" in this Prospectus and in the
accompanying Letter of Transmittal.
The Company has not entered into any arrangements or understandings
with any person to distribute the Exchange Notes to be received in the Exchange
Offer.
The Company will not receive any proceeds from the Exchange Offer.
The Company will pay all the expenses incident to the Exchange Offer. Tenders of
Restricted Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the expiration of the Exchange Offer. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Restricted
Notes, the Company will promptly return all previously tendered Restricted Notes
to their holders.
This Exchange Offer is not being made to, nor will tenders of
Restricted Notes be accepted from, holders of Restricted Notes in any
jurisdiction in which the Exchange Offer or its acceptance is unlawful.
For more information about the Exchange Offer, see "The Exchange
Offer."
Investing in the Notes involves risks. See "Risk Factors" beginning
on page 12 of this Prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this Prospectus. Any representation to the
contrary is a criminal offense.
You should read this entire Prospectus and the accompanying Letter of
Transmittal and related documents and any amendments or supplements carefully
before making your decision to participate in the Exchange Offer.
You should rely only on the information provided or incorporated by
reference in this Prospectus. We have authorized no one to provide you with
different information. You should not assume that the information in this
Prospectus is accurate as of any date other than the date on the front of this
Prospectus. Neither the delivery of this Prospectus or an accompanying Letter of
Transmittal, nor any exchange made pursuant to this Prospectus, shall under any
circumstances create an implication that the information contained in this
Prospectus is correct as of any date subsequent to the date of this Prospectus.
, 1999
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FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). We have based these
statements on our beliefs and assumptions, based on information currently
available to us. These forward-looking statements are subject to risks and
uncertainties.
Forward-looking statements are not guarantees of performance. Our
future results and requirements may differ materially from those described in
the forward-looking statements. Many of the factors that will determine these
results and requirements are beyond our control. You should consider the risks
and uncertainties discussed under "Risk Factors" and, among others, the
following:
o our potential need for additional financing,
o our potential inability to integrate the operations of
Marvel Entertainment Group, Inc. with those of Toy Biz,
Inc.,
o our potential inability to successfully implement our
business strategy,
o a decrease in the level of media exposure or popularity of
our characters resulting in declining revenues from
products based on those characters,
o the lack of commercial success of properties owned by major
entertainment companies that have granted us toy licenses,
o the lack of consumer acceptance of new product
introductions,
o the imposition of quotas or tariffs on toys manufactured in
China as a result of a deterioration in trade relations
between the U.S. and China,
o changing consumer preferences,
o production delays or shortfalls,
o continued pressure by certain of our major retail customers
to significantly reduce their toy inventory levels,
o the impact of competition and changes to the competitive
environment on our products and services,
o changes in technology (including uncertainties associated
with Year 2000 compliance),
o changes in governmental regulation, and
o other factors detailed from time to time in our
filings with the Securities and Exchange Commission (the
"Commission").
These forward-looking statements speak only as of the date of this
Prospectus. We do not intend to update or revise any forward-looking statements
to reflect events or circumstances after the date of this Prospectus, including
changes in our business strategy or planned capital expenditures, or to reflect
the occurrence of unanticipated events.
824915.10
3
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WHERE YOU CAN FIND MORE INFORMATION
In connection with the Exchange Offer, the Company has filed with the
Commission a registration statement, under the Securities Act, relating to the
Exchange Notes. As permitted by the Commission's rules, this Prospectus omits
certain information included in the registration statement. For a more complete
understanding of the Exchange Offer, you should refer to the registration
statement, including its exhibits.
We also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any document we
file at the Commission's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our Commission filings are also
available to the public from the Commission's Website at "http://www.sec.gov."
Our common stock is listed on the New York Stock Exchange. You can obtain
information about us from the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
The Commission allows us to "incorporate by reference" the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus, and
information that we file later with the Commission will automatically update and
supersede this information. We incorporate by reference the documents listed
below and any future filings we will make, within 180 days after the expiration
of the Exchange Offer, with the Commission under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act:
1. Our Annual Report on Form 10-K for the year ended December
31, 1998, and the amendment to that report on Form 10-K/A;
2. Our Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999;
3. Our Current Reports on Form 8-K filed with the Commission
on February 4, 1999, February 24, 1999, February 25, 1999,
March 10, 1999 and July 20, 1999 and our Current Report on
Form 8-K/A-2 filed with the Commission on November 25, 1998
(which incorporates by reference the consolidated financial
statements included in Marvel Entertainment Group, Inc.'s
Annual Report on Form 10-K/A for the year ended December
31, 1997 and its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1998 and June 30, 1998);
4. The descriptions of our common stock and preferred stock
contained in our Registration Statements on Form 8-A filed
on October 2, 1998 (SEC File Nos. 001- 13638 and
000-24937);
5. The section entitled "THE MARVEL PROPOSALS -- Securities to
be Issued and Transferred under the Plan" on pages 82 -87
of our Proxy Statement on Schedule 14A (SEC File No.
001-13638), as filed with the Commission on August 13,
1998, which includes descriptions of our common stock and
preferred stock;
6. The section entitled "INFORMATION CONCERNING MARVEL" on
pages 29-37 of the Proxy Statement described in the
preceding paragraph, which includes information concerning
Marvel Entertainment Group, Inc.; and
7. The consolidated financial statements and schedule
contained in the Annual Report of Marvel Entertainment
Group, Inc. on Form 10-K/A for the year ended December 31,
1997.
824915.10
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You may request a copy of these filings, at no cost, by writing us at
the following address: Marvel Enterprises, Inc., 387 Park Avenue South, New
York, New York 10016, Attention: William H. Hardie, III, Corporate Secretary, or
calling us at (212) 696-0808. Exhibits to the documents will not be sent, unless
those exhibits have specifically been incorporated by reference in this
Prospectus.
To obtain timely delivery of any copies of filings requested, please
write or telephone no later than August 10, 1999, ten days prior to the
expiration of the Exchange Offer.
824915.10
5
<PAGE>
TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS....................................................3
WHERE YOU CAN FIND MORE INFORMATION...........................................4
PROSPECTUS SUMMARY............................................................7
RISK FACTORS.................................................................12
RATIO OF EARNINGS TO FIXED CHARGES...........................................19
THE EXCHANGE OFFER...........................................................20
DESCRIPTION OF THE NOTES.....................................................32
PLAN OF DISTRIBUTION.........................................................66
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS......................67
LEGAL MATTERS................................................................70
EXPERTS......................................................................71
824915.10
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<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the details that
may be important to you. You should read this entire Prospectus carefully before
you invest.
About Marvel Enterprises, Inc.
We are an entertainment company. We operate in the licensing, comic
book publishing and toy businesses. We own the copyrights to over 3,500
fictional characters, including Spider-Man, X-Men, Captain America, Fantastic
Four and The Incredible Hulk.
Our company was called "Toy Biz, Inc." until October 1, 1998. On that
day, we acquired Marvel Entertainment Group, Inc., which had been in bankruptcy
since December 1996, and changed our name to Marvel Enterprises, Inc. When we
use the term "MEG" in this Prospectus, we are referring to Marvel Entertainment
Group. The term "Toy Biz, Inc." refers to our company before we acquired MEG.
Our acquisition of MEG was part of a plan of reorganization for Marvel
Entertainment Group that was proposed, and ultimately confirmed by the court, in
Marvel Entertainment Group's bankruptcy case. The transactions consummated on
October 1, 1998 in connection with our acquisition of MEG and MEG's emergence
from bankruptcy are referred to in this Prospectus as the "Reorganization."
We operate through the following three business divisions:
1. Marvel Licensing. Marvel Licensing licenses our characters for use
in television programs, motion pictures, destination-based entertainment (such
as theme parks), on-line media and other consumer products.
2. Marvel Publishing. Marvel Publishing is one of the world's leading
publishers of comic books. We believe that our characters are among the oldest
and most recognizable in the entertainment industry. Marvel Publishing has
published comic books based upon our characters for over 60 years, including
some of the world's most popular comic book titles.
3. Toy Biz. Toy Biz designs, develops, markets and distributes both
innovative and traditional toys in the United States and internationally. Our
toy products fall into three categories: toys based on our characters,
proprietary toys designed and developed by us, and toys based on properties
licensed to us by third parties.
We sold our Fleer/SkyBox sports and entertainment trading card
business in February 1999, an event we refer to in this Prospectus as the "Fleer
Sale." We intend to dispose of our Panini activity stickers and adhesive paper
business, conducted through our wholly-owned subsidiary Panini S.p.A., in 1999.
Our executive offices are located at 387 Park Avenue South, New York,
New York 10016 and our telephone number is (212) 696-0808.
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THE EXCHANGE OFFER
Securities Offered....... Up to $250,000,000 aggregate principal amount of the
Exchange Notes. The terms of the Exchange Notes and
the Restricted Notes are identical in all material
respects, except the offer of the Exchange Notes has
been registered under the Securities Act and,
therefore, the Exchange Notes will not be subject to
certain transfer restrictions. In addition, the
Exchange Notes will not be subject to the
registration rights and related special interest
provisions applicable to the Restricted Notes.
The Exchange Offer....... We are offering, upon the terms and subject to the
conditions of the Exchange Offer, to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Restricted Notes. See "The
Exchange Offer" for a description of the procedures
for tendering the Restricted Notes. The issuance of
the Exchange Notes is intended to satisfy certain of
our obligations contained in the registration rights
agreement.
Tenders; Expiration Date;
Withdrawal............... The Exchange Offer will expire at 5:00 p.m., New
York City time, on August 20, 1999, or such later
date and time to which it is extended (the
"Expiration Date"). The tender of Restricted Notes
pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any
Restricted Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder as promptly as practicable after
the expiration or termination of the Exchange Offer.
Federal Income Tax
Considerations........... The exchange pursuant to the Exchange Offer will not
result in any income, gain or loss to the holders of
Restricted Notes (the "Holders") or us for United
States federal income tax purposes. See "Certain
United States Federal Income Tax Considerations."
Use of Proceeds.......... There will be no proceeds to us from the exchange
pursuant to the Exchange Offer.
Exchange Agent.......... IBJ Whitehall Bank & Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
CONSEQUENCES OF EXCHANGING RESTRICTED NOTES
PURSUANT TO THE EXCHANGE OFFER
Based upon interpretations contained in letters issued to third parties
by the staff of the Commission, we believe that any Holder of Restricted Notes
(other than a broker-dealer, as set forth below, or any Holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who exchanges its Restricted Notes for Exchange Notes pursuant to the
Exchange Offer may transfer those Exchange Notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
the Exchange Notes are acquired in the ordinary course of the Holder's business
and the Holder has no arrangement or understanding with any person to
participate in a distribution of the Exchange Notes. A Holder wishing to accept
the Exchange Offer must represent to us in the Letter of Transmittal that those
conditions have been met.
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A Holder wishing to accept the Exchange Offer who is not a broker-dealer, or who
is not receiving Exchange Notes for its own account in exchange for Restricted
Notes, must also represent that it has no arrangement or understanding with any
person to participate in the distribution of the Exchange Notes. Each
broker-dealer that receives Exchange Notes for its own account pursuant to the
Exchange Offer must represent that the Restricted Notes it tendered for the
Exchange Notes were acquired as a result of market-making activities or other
trading activities. The broker-dealer must also acknowledge that it will deliver
a prospectus in connection with any resale of such Exchange Notes; however, by
so acknowledging and by delivering a prospectus, the broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
This Prospectus, as it may be amended or supplemented from time to
time, may be used by any broker-dealer (other than an affiliate of the Company)
in connection with resales of Exchange Notes received in exchange for Restricted
Notes where those Restricted Notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities. We have agreed
that, for a period of up to 180 days after the Expiration Date, we will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
To comply with the securities laws of certain jurisdictions, it may be
necessary to qualify the Exchange Notes for sale, or to register them, in such
jurisdictions prior to offering or selling them. We do not currently intend to
qualify the Exchange Notes for sale, or to register them, in any such
jurisdictions.
If a Holder does not exchange its Restricted Notes for Exchange Notes
pursuant to the Exchange Offer, those Restricted Notes will continue to be
subject to transfer restrictions. In general, the Restricted Notes may not be
offered or sold, unless the offer or sale is registered under the Securities Act
or exempt from the registration requirements of the Securities Act and
applicable state securities laws.
Any Holder who tenders its Restricted Notes in the Exchange Offer with
the intention to participate, or for the purpose of participating, in a
distribution of Exchange Notes will not be able to rely on the position of the
staff of the Commission contained in Exxon Capital Holdings Corporation
(available May 13, 1988) or similar no-action letters. In the absence of an
exemption from such no-action letters, any Holder must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Failure to comply with those
requirements may result in the Holder incurring liability under the Securities
Act for which the Holder is not indemnified by us.
See "The Exchange Offer."
We have not entered into any arrangements or understandings with any
person to distribute the Exchange Notes to be received in the Exchange Offer.
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
The terms of the Exchange Notes and the Restricted Notes are identical
in all material respects, except that the offer of the Exchange Notes will have
been registered under the Securities Act and, therefore, the Exchange Notes will
not be subject to certain transfer restrictions. In addition, the Exchange Notes
will not have the benefit of the registration rights and certain provisions
providing for an increase in the interest rate of the Notes under certain
circumstances contained in the registration rights agreement, dated February 25,
1999 (the "Registration Rights Agreement"), which the Company entered into in
connection with the offering of the Restricted Notes.
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Notes Offered............ Up to $250,000,000 aggregate principal amount of
Exchange Notes.
Maturity................. June 15, 2009.
Interest................. Interest will be payable in cash on June 15 and
December 15 of each year, beginning June 15, 1999.
Optional Redemption...... We may redeem any of the Exchange Notes beginning on
June 15, 2004. The initial redemption price is 106%
of their principal amount, plus accrued interest.
The redemption price of the Exchange Notes will
decline each year after 2004 and will be 100% of
their principal amount, plus accrued interest,
beginning on June 15, 2007.
In addition, before June 15, 2002, we may redeem up
to 35% of the aggregate principal amount of Exchange
Notes using proceeds from certain sales of our
capital stock at 112% of their principal amount,
plus accrued interest. We may make such redemption
only if at least 65% of the aggregate principal
amount of Exchange Notes originally issued remains
outstanding after any such redemption.
Change of Control........ Upon a change of control (as defined under
"Description of the Notes"), we will be required to
make an offer to purchase the Exchange Notes at 101%
of their principal amount plus accrued interest. We
may not have sufficient funds available at the time
of any change of control to make any required debt
repayment (including repurchases of the Exchange
Notes).
Guarantees............... The payment of principal and interest on the
Exchange Notes will be unconditionally guaranteed on
a senior basis jointly and severally by each of the
Company's domestic subsidiaries. Such guarantees
will rank equally with all other unsecured senior
indebtedness of the subsidiary guarantors.
Ranking.................. The Exchange Notes will rank equally with all our
existing and future unsecured senior indebtedness.
The Exchange Notes will be junior to all of our
secured indebtedness, and to all liabilities of our
subsidiaries.
Certain Covenants........ The terms of the Exchange Notes will restrict our
ability and the ability of certain of our
subsidiaries to:
o incur additional indebtedness,
o pay dividends or make distributions in respect
of capital stock,
o repurchase or redeem capital stock,
o make certain investments and other restricted
payments,
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o create liens,
o enter into transactions with stockholders or
affiliates,
o engage in sale-leaseback transactions,
o sell assets,
o issue or sell stock of certain subsidiaries,
and
o engage in mergers or consolidations.
However, these limitations will be subject to a
number of important qualifications and exceptions.
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RISK FACTORS
Our substantial indebtedness could interfere with our ability to pay interest
and principal on the Notes.
Our substantial indebtedness could interfere with our ability to pay
interest and principal on the Notes. Our indebtedness consists of $250.0 million
of Restricted Notes and a guarantee of $27.0 million of the indebtedness of
Panini S.p.A. In addition, our secured working capital facility provides for
borrowings of up to $60.0 million (subject to borrowing base restrictions).
The amount of our indebtedness could have important consequences to
noteholders, including, but not limited to, the following:
o our ability to borrow money or sell stock for working
capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited;
o a substantial portion of whatever cash we make
from our business will be needed to pay the principal of,
and interest on, our indebtedness, thereby reducing the
funds available to operate our business;
o we have made promises in our loan agreements that could
limit our ability to develop our business and expand; and
o our indebtedness may make us more vulnerable to
economic downturns, limit our ability to withstand
competitive pressures and reduce our flexibility in
responding to changing business and economic conditions.
Our ability to pay interest on the Notes, to pay interest on our other
indebtedness, to pay principal on the Notes, to repay our other lenders and to
operate and grow our business will depend on our operating success, which could
be affected by many factors, including general economic conditions and other
factors beyond our control. If we do not fulfill the promises that we made in
our loan agreements, our lenders could demand that we pay back all the money we
owe them under those loan agreements immediately. If the cash we generate by
operating our business, together with borrowings expected to be available under
our working capital facility, is not sufficient to make required payments under
our loan agreements and to cover our other cash requirements, we will need to
renegotiate our loan agreements or to refinance all or a portion of our
indebtedness or to obtain additional financing. It is possible that we will be
unable to renegotiate our loan agreements, refinance that indebtedness or obtain
additional financing.
We may need additional financing.
We believe that the proceeds from the offering of the Restricted Notes,
together with our expected cash flow from operations and borrowings expected to
be available under our working capital facility, will be sufficient to fund our
future growth as contemplated by our business strategy. We cannot assure you,
however, that our business will generate the level of cash flow from operations
that we expect or that future borrowings will be available to us. If our plans
or assumptions change, if our assumptions prove to be inaccurate or if we
experience unanticipated costs or competitive pressures, we may need to seek
additional capital. We cannot assure you that we will be able to obtain such
additional funds. In addition, our working capital facility requires us to
comply with various financial and other covenants in order to borrow under the
facility. We failed to comply with certain financial and other covenants under
the now-terminated $200.0 million bridge loan facility that we obtained from UBS
AG, Stamford Branch ("UBS") on October 1, 1998 and the now-terminated revolving
credit facility with UBS that we also obtained on October 1, 1998.
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If we are unable to obtain any additional funds, it could have a
material adverse effect on us.
Our financing agreements limit our operating flexibility.
Both the indenture that governs the Notes and our working capital
facility constrict us in ways that may limit our financial success. For
instance, they limit our ability to:
o incur additional indebtedness;
o incur liens;
o pay dividends, make investments or make some types of payments;
o consummate some types of asset sales;
o enter into some types of transactions with affiliates;
o merge or consolidate with any other person; or
o sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of our assets.
Our working capital facility requires us to satisfy various financial
tests. Events beyond our control might cause us to fail those tests. If we fail
any of the tests, our working capital facility lenders will have the right to
demand that we pay back all the money we owe them at once. If we are unable to
repay the money, those lenders might be entitled to sell substantially all our
assets, which we expect will be pledged to the lenders to secure our debt.
A significant portion of our cash flow comes from our subsidiaries.
A significant portion of our operations are conducted through our
subsidiaries and a significant portion of our assets are owned by those
subsidiaries. Accordingly, our cash flow and consequent ability to meet our
obligations will depend, to a significant extent, upon the earnings of those
subsidiaries and the availability of those earnings to us by way of dividends,
distributions, repayments of advances or loans.
Panini S.p.A. and our other foreign subsidiaries will not guarantee the Notes.
Your right to receive payments on the Notes could be adversely affected if any
of our non-guarantor subsidiaries declare bankruptcy, liquidate, or reorganize.
None of our foreign subsidiaries (including Panini S.p.A.) will
guarantee the Notes unless they guarantee other indebtedness. Claims of
creditors (including trade creditors) of those subsidiaries may reduce
significantly the funds otherwise available from the operations of those
subsidiaries. Specifically, in the event of a bankruptcy, liquidation or
reorganization of any of the non-guarantor subsidiaries, holders of their
indebtedness and their trade creditors will generally be entitled to payment of
their claims from the assets of those subsidiaries before any assets are made
available for distribution to us.
The Notes are unsecured. The claims of certain other parties will have priority
over your claims.
The Notes will be effectively subordinated to all of our secured
obligations, including obligations under our secured working capital facility,
to the extent of the assets securing such obligations. Our working capital
facility is secured by substantially all of our assets (other than our
intellectual property and the capital stock of Panini S.p.A.).
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Federal and state statutes allow courts, under specific circumstances, to void
guarantees and require noteholders to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee of the Notes could be voided,
or claims in respect of a subsidiary guarantee could be subordinated to all
other debts of the subsidiary guarantor if, among other things, the subsidiary
guarantor, at the time it incurred the indebtedness evidenced by its subsidiary
guarantee, received less than reasonably equivalent value or fair consideration
for the incurrence of such subsidiary guarantee and:
o was insolvent or rendered insolvent by reason of such incurrence;
or
o was engaged in a business or transaction for which the subsidiary
guarantor's remaining assets constituted unreasonably small
capital; or
o intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature.
In addition, any payment by that subsidiary guarantor pursuant to its
subsidiary guarantee could be voided and required to be returned either to the
subsidiary guarantor or to a fund for the benefit of the creditors of the
subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a subsidiary
guarantor would be considered insolvent if:
o the sum of its debts, including contingent liabilities, were
greater than the fair salable value of all of its assets;
o if the present fair salable value of its assets were less than
the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they
become absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating
history and other factors, we believe that each subsidiary guarantor, after
giving effect to its guarantee of the Notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as they mature. A
court, however, might not agree with our conclusions in this regard.
A significant portion of our assets are intangible assets and may not be
sufficient to repay all of our indebtedness (including the Notes) if secured
creditors foreclose on the assets pledged to them.
A significant portion of our assets consist of copyrights,
trademarks, licenses, goodwill and certain other intangibles. These assets
comprised $487.7 million of our $689.9 million of total assets at December 31,
1998, resulting in negative tangible net worth of $304.1 million. The value of
these assets could be reduced materially in the future due to changing consumer
preferences, our failure to implement our business strategy, competition and
other future trends. As a result, our assets may not be sufficient to repay all
of our indebtedness (including the Notes) if secured creditors foreclose on the
assets pledged to them or if we are forced to dispose of our assets to meet our
obligations.
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Licensing of our intellectual property rights to third parties reduces the value
of those rights in the event of an asset disposition.
Our business strategy is to generate revenue by licensing the right
to use our characters to third parties. This strategy requires us to surrender
some or all of the rights to our characters for varying periods of time. If we
are forced to dispose of our assets to meet our obligations under the Notes (or
other indebtedness), the value we receive for our characters could be reduced to
the extent we have granted rights over those characters to third parties.
In addition, as part of our licensing strategy, we may receive
non-cash consideration for licensing the right to use our characters to third
parties. Non-cash consideration may not provide a cash stream to enable us to
service our obligations under the Notes (or other indebtedness). In addition,
any non-cash consideration may involve considerable credit risk, may not be
convertible into cash and may have no value upon sale.
The financial data of MEG has limited use in evaluating our future performance.
The financial data of MEG is not indicative of our future performance
due to several factors, including: (1) the effects of MEG's acquisition of
Panini S.p.A. on September 1, 1994; (2) MEG's consolidation of its financial
statements with those of Toy Biz, Inc. from March 2, 1995 (the date of Toy Biz,
Inc.'s initial public offering) through June 30, 1997 (the results of operations
of Toy Biz, Inc. after June 30, 1997 are not included in MEG's statement of
operations data); (3) the effects of MEG's acquisition of SkyBox International
Inc. on April 27, 1995; (4) MEG's commencement of bankruptcy proceedings on
December 27, 1996; (5) the Reorganization; (6) the Fleer Sale and (7) the
intended disposition of the Panini business. As a result, there is limited
financial and operating data of MEG for a potential investor to evaluate.
We might not be able to integrate the businesses of Toy Biz, Inc. and MEG.
Our future success will depend in part on our ability to effectively
integrate the businesses of Toy Biz, Inc. and MEG. This process may require a
disproportionate amount of time and attention of our management, financial and
other resources. Although we believe that we have the opportunity for synergies
and cost savings, the timing or amount of synergies or cost savings that may
ultimately be attained is uncertain. Some of the anticipated benefits of the
combination may not be achieved if our operations are not successfully
integrated in a timely manner. The difficulties of that integration may
initially be increased by the necessity of coordinating and integrating
personnel with different business backgrounds and corporate cultures. We might
not be able to integrate effectively Toy Biz, Inc.'s and MEG's operations. If we
are not successful in this combination, if the combination takes longer than
anticipated, or if the integrated operations fail to achieve market acceptance,
our business could be adversely affected. In addition, implementation of our
business strategy will be subject to numerous other contingencies beyond our
control, including, among others, general and regional economic conditions,
interest rates, competition, and the ability to attract and maintain skilled
employees. As a result, the combination might not be successful, our business
strategies might not be effective and we might not be able to achieve our goals.
There have been declines in many of our lines of business in recent periods.
In recent years there has been a decline in many of our businesses, and
that decline may continue. In 1995 and 1996, there was an overall decline in
MEG's core publishing business, its licensing business and its sports and
entertainment trading card business which had a material adverse effect on MEG.
This decline, along with the substantial indebtedness incurred by MEG in
connection with its acquisition program, ultimately led MEG to file for
bankruptcy protection in 1996. MEG's publishing revenues, along with those of
the overall comic book industry, 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. These store
closings further hurt MEG's net publishing revenues. In 1997 and 1998, MEG's
publishing revenues continued
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to decline due to these reasons and MEG's decision to eliminate unprofitable
comic book titles. We do not expect publishing revenues to return to
pre-bankruptcy levels.
MEG's licensing revenues declined significantly from pre-bankruptcy
levels. These revenues decreased from $54.7 million in 1995 to $15.1 million in
1998. There can be no assurance that our licensing revenues will reach MEG's
pre-bankruptcy levels.
The bankruptcy of MEG also caused a decline in our toy business because
a substantial portion of our toy products were based on characters licensed to
us by MEG. Our toy business might not return to its pre-bankruptcy levels. In
addition, during the fourth quarter of 1998, our operations were hurt by the
decision of Toys 'R' Us, one of our major customers, to significantly reduce its
toy inventory levels.
Our net toy sales were $221.6 million, $150.8 million and $212.4
million in 1996, 1997 and 1998, respectively, while our toy operating income
(loss) was $27.2 million, $(49.3) million and $(18.7) million, respectively, for
such periods. MEG's revenues (including the Fleer/SkyBox sports and
entertainment trading card and Panini activity sticker and adhesive paper
businesses) were $745.5 million, $471.7 million and $273.5 million in 1996, 1997
and the nine months ended September 30, 1998, respectively, while its operating
loss was $(386.3) million, $(191.4) million and $(2.3) million, respectively,
for such periods.
We believe the sales and the profitability of each of our businesses
have been hurt by concerns about the effect of MEG's bankruptcy proceedings
among customers and others with whom we do business. While we believe that the
consummation of MEG's plan of reorganization has alleviated these concerns, our
sales and profitability might continue to be adversely affected.
We might not be able to successfully implement our business strategy.
Our ability to pay interest and principal on the Notes depends on the
success of our business strategy. Our strategy is to increase the media exposure
of our characters by licensing our characters for feature films, television
programming and other media. We believe that this kind of media exposure
increases consumer awareness and the popularity of our characters and generates
increased sales of our comic books and toys, as well as licensed products based
on our characters. We have granted, and expect to grant, licenses to produce
feature films and television programming based on our characters. However,
whether any feature films or television programming are actually made, released
or broadcast, and the timing of release or broadcast, if any, is outside of our
control. In the past, we have granted licenses to produce feature films based on
many of our key characters, including Spider-Man, X-Men, Captain America,
Fantastic Four, The Incredible Hulk, Iron Man, Daredevil and Silver Surfer. To
date, no feature films based on these characters have been released. If a
feature film or television programming is released or broadcast, we cannot
provide any assurances that such film or programming will be successful or that
such film or programming will result in increased demand for licensing and toys
based on our characters. If we overestimate the demand for Marvel-based toys, we
may have a large inventory of toys which we cannot sell or must mark down to
sell, and therefore our financial results could be materially impacted. While we
have over 3,500 characters, we have fewer than 20 which are very well known by a
broad group of consumers.
Our customer base for toys is concentrated.
Like other toy makers, we are dependent upon toy retailers and mass
merchandisers to distribute our products. The retail toy business is highly
concentrated. The five largest customers for our toy products accounted in the
aggregate for approximately 66% of our total toy sales in 1998. An adverse
change in, or termination of, our relationship with one or more of our major
customers could have a material adverse effect on us. In recent years, the
retail chain store industry, and the toy retail industry in particular, have
undergone significant consolidation. To the extent that this consolidation
continues, our distribution base could shrink,
824915.10
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thereby concentrating an even greater percentage of our sales in a smaller
number of retailers and increasing the remaining toy retailers' ability to
negotiate more favorable terms and prices from us.
Toy retailers' inventory management systems could cause us to produce the wrong
amount of toy products.
Each of our five top toy customers uses, to some extent, inventory
management systems which track sales of particular products and rely on reorders
being rapidly filled by suppliers like us, rather than on large inventories
being maintained by the retailers themselves. These systems increase pressure on
us to fill orders promptly. The systems also shift a portion of retailers'
inventory risk onto us. Our production of excess products to meet anticipated
retailer demand could result in markdowns and increased inventory carrying costs
for us on even our most popular items. For instance, we believe that our
operations were negatively impacted in the fourth quarter of 1998 by the
decision of Toys 'R' Us, one of our major customers, to significantly reduce its
toy inventory levels. If we fail to anticipate a high demand for our products,
however, we face the risk that we may be unable to provide adequate supplies of
popular toys to retailers in a timely fashion, particularly during the Christmas
season, and may consequently lose sales.
We are vulnerable to changing consumer preferences.
Our new and existing toy products are subject to changing consumer
preferences. Most of our toy products can be successfully marketed for only a
limited period. In particular, toys based on feature films are in general
successfully marketed for only a year or two following the film's release.
Existing product lines might not retain their current popularity or new products
developed by us might not meet with the same success as our current products. We
might not accurately anticipate future trends or be able to successfully
develop, produce and market products to take advantage of market opportunities
presented by those trends. Part of our strategy is to make toys based on the
anticipated success of feature film releases and TV show broadcasts. If these
releases and broadcasts are not successful, we may not be able to sell these
toys profitably, if at all. In addition, we derive a substantial portion of our
revenues from a limited number of popular toys. In particular, we expect
products based on our World Championship Wrestling license to generate a
significant portion of our operating income during the next several years. If
these products are not successful, it could have a material adverse effect on
us.
We depend on toy manufacturers in China.
A large number of our toy products are manufactured in China, which
subjects us to risks of currency exchange fluctuations, transportation delays
and interruptions, and political and economic disruptions. Our ability to obtain
products from our Chinese manufacturers 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 us. The imposition of further trade sanctions
on China could result in significant supply disruptions or higher merchandise
costs to us. We might not be able to find alternate sources of manufacturing
outside China on acceptable terms even if we want or need to. Our inability to
find those alternate sources could have a material adverse effect on us.
We purchase goods from manufacturers in China mostly in Hong Kong
dollars and, accordingly, fluctuations in Hong Kong monetary rates may have an
impact on our cost of goods. In recent years, the value of the Hong Kong dollar
has been tied to the value of the United States dollar, eliminating fluctuations
between the two currencies. The Hong Kong dollar, however, might not continue to
be tied to the United States dollar. Furthermore, appreciation of Chinese
currency values relative to the Hong Kong dollar could increase our cost of
products manufactured in China and harm our business.
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Our toy business is seasonal.
Unlike many industries, the toy industry tends to be seasonal. Our
annual operating performance depends, in large part, on our sales of toys during
the relatively brief Christmas selling season. During 1996, 1997 and 1998, 64%,
67% and 60%, respectively, of our domestic net toy sales were realized during
the second half of the year. We expect that our toy business will continue to
experience a significant seasonal pattern for the foreseeable future. This
seasonal pattern requires significant use of working capital mainly to build
inventory during the year, prior to the Christmas selling season, and requires
accurate forecasting of demand for our products during the Christmas selling
season.
We must often make advance payments and guarantee royalties under licenses that
we acquire.
When we obtain licenses from others to manufacture products based on
their characters, we are often required to pay significant non-refundable
advances or to guarantee significant minimum royalty payments without knowing
whether the characters will be popular. If a character does not turn out to be
popular, the non-refundable advances and guaranteed minimum royalties might
cause us to lose a significant amount of money on the license.
We depend on a single direct market comic book distributor.
We distribute our comic book publications to the direct market through
the only major comic book distributor. The direct market accounted for
approximately 81% of Marvel Publishing's net publishing revenues in 1998. As a
result, a termination of our agreement with that distributor could significantly
disrupt our publishing operations. Our agreement with the distributor is for a
term of three-and-a-half years and automatically renews for succeeding one-year
periods unless terminated by either party. Either party also has the right to
terminate upon the happening of certain events. We believe that the termination
of the current distribution agreement would not have a long-term material
adverse effect on us.
We depend on our key personnel.
We depend to a substantial extent upon the expertise and services of
our senior management personnel and upon the expertise and services of Avi Arad,
who is our Chief Creative Officer, the President and Chief Executive Officer of
our film and television production operations, and one of our directors.
Virtually all of our toy products are the result of inventions by Mr. Arad or
are products in which Mr. Arad played a significant development role. The loss
of Mr. Arad's services could have a material adverse effect on us. In addition,
the loss of the services of any of our other senior management personnel also
could have a material adverse effect on us. The Company does not currently
maintain key-man life insurance on any of its personnel.
We have not yet achieved Year 2000 compliance.
Through March 31, 1999, we incurred Year 2000 ("Y2K") conversion costs
of approximately $1.5 million, primarily for our Toy Biz division, and we expect
to incur an additional $1.0 million in 1999. We are utilizing both internal and
external resources to upgrade or replace our software for Y2K compliance. We
anticipate completing the Y2K project for all our divisions by October 31, 1999.
During MEG's bankruptcy, the Marvel Licensing and Marvel Publishing
divisions had received only nominal Y2K conversion attention. We have placed all
our divisions on an accelerated program and have enlisted full time external
project management resources to supplement our efforts.
A weekly steering committee now monitors the Y2K program against its
primary goal of critical system remediation across three key areas: 1)
enterprise software for basic accounting and order execution; 2) legacy
824915.10
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and infrastructure remediation (i.e. remaining systems, PCs, telephones); and 3)
third party (customers, vendors) status and contingency planning. A quality
assurance program will be initiated in the third quarter.
The cost of the project and the date on which we will complete the Y2K
modifications are only estimates. We are currently not aware of any material
issues of Y2K non-compliance with our customers and suppliers. The worst-case
scenarios would be manual performance of all accounting functions and the loss
of relationships with major customers because of the inability of our computers
to interface with theirs. We have not yet developed a contingency plan to assess
the likelihood of, and to address, the worst-case scenarios. If the Y2K project
is not completed on a timely basis, or if our customers or suppliers fail to
address all the Y2K issues, it could have a material adverse impact on our
operations. We currently believe that the Y2K issue will not pose significant
operational problems for our computer systems.
There is no existing public market for the Notes.
Although holders of Exchange Notes who are not "affiliates" of the
Company within the meaning of the Securities Act may resell or otherwise
transfer their Exchange Notes without compliance with the registration
requirements of the Securities Act, there is no existing market for the Exchange
Notes, and there can be no assurance as to the liquidity of any markets that may
develop for the Exchange Notes, the ability of holders of Exchange Notes to sell
their Exchange Notes or the prices at which holders would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities.
Failure to exchange Restricted Notes will result in continued restrictions on
transfer.
Holders of Restricted Notes who do not exchange their Restricted Notes
for Exchange Notes under the Exchange Offer will continue to be restricted in
their ability to transfer their Restricted Notes. In general, the Restricted
Notes may not be offered or sold unless they are registered under the Securities
Act. We do not intend to register the Restricted Notes under the Securities Act.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 16.2x 71.8x 73.1x -- -- 1.2x
=================================================================================
</TABLE>
For the purposes of the ratio of earnings to fixed charges, earnings
were calculated by adding pretax income, interest expense and the portion of
rents representative of an interest factor. Fixed charges consist of interest
expense and the portion of rents representative of an interest factor. For the
years ended December 31, 1997 and 1998, the Company's earnings were insufficient
to cover its fixed charges by approximately $49.7 million and $28.2 million,
respectively. The ratio of earnings to fixed charges for the year ended December
31, 1998 is not comparable with prior periods due to the Company's acquisition
of MEG on October 1, 1998.
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THE EXCHANGE OFFER
Reason for the Exchange Offer
The Company initially sold the Restricted Notes on February 25, 1999 to
Morgan Stanley & Co. Incorporated and Warburg Dillon Read LLC, collectively
referred to herein as the "Placement Agents," pursuant to a placement agreement,
dated February 17, 1999, among the Company, certain of its subsidiaries as
guarantors, and the Placement Agents. The Placement Agents subsequently placed
the Restricted Notes:
o to qualified institutional buyers in accordance with the
provisions of Rule 144A under the Securities Act, and
o outside the United States in accordance with the provisions
of Regulation S under the Securities Act.
In connection with the offering of the Restricted Notes, the Company,
certain of its subsidiaries as guarantors, and the Placement Agents entered into
the Registration Rights Agreement, in which the Company and the guarantors
agreed, among other things:
o to use their best efforts to file with the Commission a
registration statement relating to an Exchange Offer for
the Restricted Notes;
o to use their best efforts to cause the Exchange Offer
registration statement to be declared effective under the
Securities Act and to remain effective until the
consummation of the Exchange Offer;
o upon the effectiveness of the Exchange Offer registration
statement, to offer the holders of the Restricted Notes the
opportunity to exchange their Restricted Notes in the
Exchange Offer for a like principal amount of Exchange
Notes;
o to keep the Exchange Offer open for not less than 20
business days, or longer, if required by applicable law,
after notice of the Exchange Offer is mailed to holders of
Restricted Notes;
o to use their best efforts to consummate the Exchange Offer
no later than 60 days after the date on which the Exchange
Offer registration statement is declared effective; and
o until 180 days after the Expiration Date, to make this
Prospectus, as amended or supplemented, available to certain
broker-dealers in connection with resales of the Exchange
Notes.
The Company and the guarantors also agreed, under certain
circumstances:
o to use their best efforts to file a shelf registration
statement relating to the offer and sale of the Restricted
Notes by the holders of the Restricted Notes;
o to use their best efforts to cause such shelf registration
statement to be declared effective; and
o to use their best efforts to keep such shelf registration
statement effective until the expiration of the time period
referred to in Rule 144(k) under the Securities Act after
the shelf registration statement becomes effective or until
the Restricted Notes covered by the shelf registration
statement have been sold or cease to be outstanding.
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The Exchange Offer being made by this Prospectus is intended to satisfy
the Company's obligations under the Registration Rights Agreement. If the
Exchange Offer is not consummated and the shelf registration statement, if
applicable, is not declared effective on or prior to August 25, 1999, holders of
outstanding Restricted Notes are entitled to receive additional interest at the
rate of 0.5% per annum until the Exchange Offer is consummated or the shelf
registration statement is declared effective by the Commission.
For a more complete understanding of your rights under the Registration
Rights Agreement, please refer to the Registration Rights Agreement, which is
included as Exhibit 4.3 to the registration statement of which this Prospectus
is a part.
Transferability of the Exchange Notes
Based on certain no-action letters issued by the staff of the
Commission to others in unrelated transactions, the Company believes that a
noteholder may offer for resale, resell or otherwise transfer any Exchange Notes
without compliance with the registration and prospectus delivery requirements of
the Securities Act, unless the noteholder
o is acquiring the Exchange Notes other than in the ordinary
course of business;
o is participating, intends to participate or has an
arrangement or understanding with any person to participate,
in a distribution of the Exchange Notes;
o is an "affiliate" of the Company, as defined in Rule 405
under the Securities Act; or
o is a Placement Agent who acquired Restricted Notes directly
from the Company in the initial offering of the Restricted
Notes to resell pursuant to Rule 144A, Regulation S or any
other available exemption under the Securities Act.
In any of the foregoing circumstances, a noteholder
o will not be able to rely on the interpretations of the staff
of the Commission, in connection with any offer for resale,
resale or other transfer of Exchange Notes; and
o must comply with the registration and prospectus delivery
requirements of the Securities Act, or have an exemption
available, in connection with any offer for resale, resale
or other transfer of the Exchange Notes.
The Company is not making this Exchange Offer to, nor will it accept
surrenders of Restricted Notes from, holders of Restricted Notes in any
jurisdiction in which this Exchange Offer would not comply with the applicable
securities laws or "blue sky" laws of such jurisdiction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Restricted Notes, where such Restricted Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. We have agreed that, for a period of up
to 180 days after the Expiration Date, we will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
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Use of Proceeds
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes. As consideration for the Exchange Notes, the Company will
receive in exchange an equivalent principal amount of outstanding Restricted
Notes, the terms of which are substantially identical to the terms of the
Exchange Notes, except that the Exchange Notes will be freely transferable and
issued free of any covenants regarding registration rights.
The Company will retire and cancel the Restricted Notes surrendered in
exchange for the Exchange Notes. Accordingly, the issuance of the Exchange Notes
under the Exchange Offer will not result in any change in the outstanding
aggregate indebtedness of the Company.
Terms of the Exchange Offer
As of the date of this Prospectus, $250.0 million aggregate principal
amount of Restricted Notes are outstanding. In the Exchange Offer, Restricted
Notes will be exchanged for Exchange Notes.
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Restricted Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on August 20, 1999, the date that the Exchange Offer
expires. This date and time may be extended. See "Expiration Date; Extensions;
Amendments" below. After authentication of the Exchange Notes by the trustee
under the indenture governing the Notes or an authenticating agent, the Company
will issue and deliver $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Restricted Notes accepted in the
Exchange Offer. Holders may tender some or all of their Restricted Notes
pursuant to the Exchange Offer in denominations of $1,000 and integral multiples
thereof.
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the outstanding Restricted Notes, except that:
o the offering of the Exchange Notes has been registered under
the Securities Act;
o the Exchange Notes will not be subject to transfer
restrictions; and
o the Exchange Notes will not have registration rights.
The Exchange Notes will be issued under and entitled to the benefits of
the indenture that governs the Restricted Notes.
In connection with the issuance of the Restricted Notes, the Company
arranged for the Restricted Notes to be issued and transferable in book-entry
form through the facilities of The Depository Trust Company ("DTC"), acting as a
depositary. The Exchange Notes will also be issuable and transferable in
book-entry form through DTC.
This Prospectus, together with the accompanying Letter of Transmittal,
is initially being sent to all registered holders of Restricted Notes as of the
close of business on July 20, 1999. The Exchange Offer for Restricted Notes is
not conditioned upon any minimum aggregate principal amount being tendered.
However, the Exchange Offer is subject to certain customary conditions which may
be waived by the Company, and to the terms and provisions of the Registration
Rights Agreement. See "Certain Conditions to the Exchange Offer" below.
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The exchange agent is IBJ Whitehall Bank & Trust Company (the "Exchange
Agent"), which also serves as trustee under the indenture that governs the
Notes.
The Company will be deemed to have accepted validly tendered Restricted
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent of the tendering
Holders for the purpose of receiving Exchange Notes from the Company and as
agent of the Company for the purpose of delivering Exchange Notes to such
Holders. See "Exchange Agent" below.
If any tendered Restricted Notes are not accepted for exchange because
of an invalid tender or the occurrence of certain other events set forth herein
or if Restricted Notes are submitted in a principal amount greater than the
principal amount of Restricted Notes tendered for exchange, certificates for any
such Restricted Notes will be returned, at the Company's cost, to the tendering
Holder (or, in the case of Restricted Notes tendered by book-entry transfer into
the Exchange Agent's account at DTC pursuant to the book-entry transfer
procedures described below, such non-exchanged Restricted Notes will be credited
to an account maintained with DTC, without expense to the tendering Holder) as
promptly as practicable after the expiration of the Exchange Offer.
Holders who tender Restricted Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Restricted Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "Solicitation of Tenders; Fees and Expenses" below.
Holders of Restricted Notes do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law or the indenture in connection
with the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
Expiration Date; Extensions; Amendments
The Exchange Offer will expire at 5:00 p.m., New York City time, on
August 20, 1999, unless the Company, in its sole discretion, extends the
Exchange Offer. The Company may extend the Exchange Offer at any time and from
time to time by giving oral or written notice to the Exchange Agent and by
timely public announcement.
The Company expressly reserves the right, in its sole discretion, to
amend the terms of the Exchange Offer in any manner and to waive any of the
conditions to the Exchange Offer. If any of the conditions set forth below under
"Certain Conditions to the Exchange Offer" has not occurred and has not been
waived by the Company, the Company expressly reserves the right, in its sole
discretion, by giving oral or written notice to the Exchange Agent, to:
o delay acceptance of, or refuse to accept, any Restricted
Notes not previously accepted;
o extend the Exchange Offer and retain all Restricted Notes
tendered prior to the expiration of Exchange Offer, subject,
however, to the rights of Holders to withdraw such
Restricted Notes; or
o terminate the Exchange Offer.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof by the
Company to the registered Holders of the Restricted Notes. If the Exchange Offer
is amended in a manner determined by the Company to constitute a material
change, the
824915.10
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Company will promptly disclose such amendment in a manner reasonably calculated
to inform the Holders of such amendment, and the Company will extend the
Exchange Offer to the extent required by law. If the Exchange Offer is
terminated, federal law requires that the Company promptly either exchange or
return all Restricted Notes that have been tendered (or, in the case of
Restricted Notes tendered by book-entry transfer into the Exchange Agent's
account at DTC pursuant to the book-entry transfer procedures described below,
the Company must promptly credit the account maintained with DTC).
The Company will have no obligation to publish, advise, or otherwise
communicate any delay in acceptance, extension, termination or amendment of the
Exchange Offer other than by making a timely press release. The Company may also
publicly communicate these matters in any other appropriate manner of its
choosing.
Procedures for Tendering
Only a Holder of record of Restricted Notes or a DTC participant listed
on a DTC securities position listing as a holder of such Restricted Notes may
tender its Restricted Notes in the Exchange Offer. To tender Restricted Notes in
the Exchange Offer:
o registered Holders of certificated Restricted Notes must
complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions
contained in this Prospectus and in the Letter of
Transmittal; the Holders should then mail or otherwise
deliver such Letter of Transmittal, or such facsimile,
together with the Restricted Notes to be exchanged and any
other required documentation, to the Exchange Agent, at the
address set forth in this Prospectus and in the Letter of
Transmittal;
o Holders of Restricted Notes that are DTC participants may
follow the procedures for book-entry transfer as provided
for below under "Book-Entry Transfer" and in the Letter of
Transmittal.
To be effective, a tender must be made prior to the Expiration Date.
Any beneficial owner whose Restricted Notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender Restricted Notes in the Exchange Offer should contact such
registered Holder promptly and instruct such registered Holder to tender on such
beneficial owner's behalf. If a beneficial owner wishes to tender on its own
behalf, such beneficial owner must, prior to completing and executing the Letter
of Transmittal and delivering its Restricted Notes or transmitting its
acceptance to DTC through DTC's Automated Tender Offer Program ("ATOP"), either
make appropriate arrangements to register ownership of the Restricted Notes in
its own name or obtain a properly completed bond power from the registered
Holder of such Restricted Notes. This transfer of record ownership may take
considerable time.
Delivery of documents to DTC in accordance with DTC's procedures will
NOT constitute delivery to the Exchange Agent.
The tender by a Holder of Restricted Notes and the acceptance thereof
by the Company will constitute an agreement between such Holder, the Company and
the Exchange Agent in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal. If less than all the
Restricted Notes held by a Holder of Restricted Notes are tendered, a tendering
Holder should specify the amount of Restricted Notes being tendered in the
Letter of Transmittal or the Agent's Message. The entire amount of Restricted
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated.
The Letter of Transmittal will include representations by the tendering
Holder to the Company that, among other things:
824915.10
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o any Exchange Notes received by the tendering Holder will be
acquired in the ordinary course of its business;
o the tendering Holder is not participating in, and has no
arrangement or understanding with any person to participate
in, the distribution of the Exchange Notes; and
o the tendering Holder is not an "affiliate," as defined in
Rule 405 under the Securities Act, of the Company, or, if it
is an affiliate, that it will comply with the registration
and prospectus delivery requirements of the Securities Act
to the extent applicable.
A Letter of Transmittal of a broker-dealer that receives Exchange Notes
for its own account in exchange for Restricted Notes that were acquired by it as
a result of market-making or other trading activities must also include an
acknowledgment that the broker-dealer will deliver a prospectus in connection
with the resale of such Exchange Notes. By so acknowledging and by delivering a
prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
The method of delivery of Restricted Notes and Letter of Transmittal
and all other required documents or transmittal of an Agent's Message, as
described below under "Book-Entry Transfer," to the Exchange Agent is at the
election and sole risk of the Holders of Restricted Notes and the delivery will
be deemed made only when actually received by the Exchange Agent. It is
recommended that Holders of Restricted Notes use an overnight or hand delivery
service for delivery of the Letter of Transmittal. In all cases, sufficient time
should be allowed to ensure delivery to the Exchange Agent prior to the
Expiration Date. No Letters of Transmittal or Restricted Notes should be sent to
the Company. Neither the Company nor the registrar is under any obligation to
notify any tendering holder of the Company's acceptance of tendered Restricted
Notes prior to the closing of the Exchange Offer.
Signatures on a Letter of Transmittal or a notice of withdrawal
described in "Withdrawal of Tenders" below must be guaranteed by a member firm
of a registered national securities exchange or of the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (each, an
"Eligible Institution"), unless the corresponding Restricted Notes are tendered
o by a registered Holder who has not completed the box
entitled "Special Issuance Instructions" or the box entitled
"Special Delivery Instructions" in the Letter of
Transmittal; or
o for the account of an Eligible Institution.
If a Letter of Transmittal is signed by a person other than the registered
Holder, the corresponding Restricted Notes must be endorsed or accompanied by
properly completed bond powers which authorize such person to tender the
Restricted Notes on behalf of the registered Holder, in either case signed as
the name or names of the registered Holder or Holders appear on the Restricted
Notes or securities position listing maintained by DTC, as the case may be. If a
Letter of Transmittal or any Restricted Notes or bond powers are signed or
endorsed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with such Letter of Transmittal. Endorsements, and signatures on
bond powers, must be guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility, acceptance and
withdrawal of the tendered Restricted Notes will be determined by the Company in
its sole discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Restricted Notes not properly
tendered or any Restricted Notes the Company's acceptance of which would, in the
opinion of counsel for the Company, be unlawful. The Company also reserves the
absolute right to waive any defects or irregularities or conditions of
824915.10
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<PAGE>
tender as to particular Restricted Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer, including the instructions in the
Letter of Transmittal, will be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Restricted Notes
must be cured within such time as the Company shall determine.
Although the Company intends to notify tendering Holders of defects or
irregularities with respect to tenders of Restricted Notes, neither the Company,
the Exchange Agent nor any other person will be under any duty or obligation to
do so, and no person will incur any liability for failure to give such
notification. Restricted Notes will not be validly tendered until such
irregularities have been cured or waived. Any Restricted Notes received by the
Exchange Agent that the Company determines are not properly tendered or the
tender of which is otherwise rejected by the Company will be returned by the
Exchange Agent to the tendering Holder or other person specified in the Letter
of Transmittal (or, in the case of Restricted Notes tendered by book-entry
transfer into the Exchange Agent's account of DTC pursuant to the book-entry
transfer procedures described below, such non-exchanged Restricted Notes will be
credited to the account maintained with DTC) as soon as practicable following
the expiration of the Exchange Offer.
The Company reserves the right in its sole discretion:
o to purchase or make offers for any Restricted Notes that
remain outstanding subsequent to the expiration of the
Exchange Offer;
o to terminate the Exchange Offer, as set forth in "Certain
Conditions to the Exchange Offer" below; and
o to the extent permitted by applicable law, to purchase
Restricted Notes during the pendency of the Exchange Offer
in the open market, in privately negotiated transactions or
otherwise.
The terms of any such purchases or offers may differ from the terms of the
Exchange Offer.
Book-Entry Transfer
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Restricted Notes at DTC for the purpose of facilitating the Exchange Offer.
Any financial institution that is a participant in DTC's system may make
book-entry delivery of Restricted Notes by causing DTC to transfer such
Restricted Notes into the Exchange Agent's DTC account in accordance with DTC's
ATOP procedures for such transfer. The exchange for tendered Restricted Notes
will only be made after a timely confirmation of a book-entry transfer of the
Restricted Notes into the Exchange Agent's DTC account, and timely receipt by
the Exchange Agent of the Letter of Transmittal or an Agent's Message and any
other documents required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by DTC to, and
received by, the Exchange Agent, forming part of the confirmation of a
book-entry transfer, which states that DTC has received an express
acknowledgment from a participant tendering Restricted Notes and that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against the
participant. Delivery of an Agent's Message will also constitute an
acknowledgment from the tendering DTC participant that the representations
contained in the Letter of Transmittal and described above in "Procedures for
Tendering" are true and correct.
824915.10
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Guaranteed Delivery Procedures
Holders who wish to tender their Restricted Notes and:
o whose Restricted Notes are not immediately available,
o who cannot deliver their Restricted Notes, the Letter of
Transmittal or any other required documents to the Exchange
Agent prior to the expiration of the Exchange Offer, or
o who cannot complete the procedure for book-entry transfer on
a timely basis,
may effect a tender if:
o the tender is made through an Eligible Institution;
o prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery, in a form
satisfactory to the Company (a "Notice of Guaranteed
Delivery") by facsimile transmittal, mail or hand delivery;
and
o certificate(s) representing all tendered Restricted Notes in
proper form for transfer (or a confirmation of book-entry
transfer of such Restricted Notes), together with the
properly completed and executed Letter of Transmittal, or
facsimile thereof (or, in the case of a book-entry transfer,
an Agent's Message) and all other documents required by the
Letter of Transmittal, are received by the Exchange Agent
within three business days after the Expiration Date.
A Notice of Guaranteed Delivery must state:
o the name and address of the Holder;
o if the Restricted Notes will be tendered by their Registered
Holder, the certificate number or numbers of such Restricted
Notes;
o the principal amount of such Restricted Notes tendered;
o that the tender is being made thereby; and
o that the Holder guarantees that, within three business days
after the Expiration Date, a Letter of Transmittal or
facsimile thereof (or, in the case of a book-entry transfer,
an Agent's Message), together with the certificate(s)
representing the Restricted Notes to be tendered in proper
form for transfer (or a confirmation of book-entry transfer
of such Restricted Notes) and any other documents required
by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent.
A form of the Notice of Guaranteed Delivery will be available from the
Exchange Agent upon request.
824915.10
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<PAGE>
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Restricted Notes may be
withdrawn at any time prior to the Expiration Date by delivery of a written or
facsimile transmission notice of withdrawal to the Exchange Agent at its address
set forth in this Prospectus or by compliance with DTC's ATOP procedures.
Any such notice of withdrawal must:
o specify the name of the person having tendered the
Restricted Notes to be withdrawn;
o identify the Restricted Notes to be withdrawn, including the
certificate number or numbers and principal amount of such
Restricted Notes or, in the case of Restricted Notes
transferred by book-entry transfer, the name and number of
the account at DTC to be credited;
o be signed by the Holder of the Restricted Notes in the same
manner as the original signature on the Letter of
Transmittal by which such Restricted Notes were tendered,
including any required signature guarantee such as the
signature guarantee of an Eligible Institution unless such
Holder is an Eligible Institution, or be accompanied by
documents of transfer sufficient to permit the registrar to
register the transfer of such Restricted Notes into the name
of the person withdrawing the tender;
o specify the name in which any such Restricted Notes are to
be registered, if different from that of the Holder of the
Restricted Notes; and
o comply with the appropriate procedures of DTC's ATOP system
in the case of Restricted Notes transferred by book-entry
transfer.
All questions as to the validity, form and eligibility of such
withdrawal notices (including time of receipt) will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Restricted Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer, and no Exchange Notes will be issued with
respect thereto unless the Restricted Notes so withdrawn are validly retendered.
Any Restricted Notes that have been tendered but are not accepted for exchange
will be returned to the Holder thereof without cost to such Holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer (or, in the case of Restricted Notes tendered by book-entry transfer, such
tendered Restricted Notes will be credited to the account maintained with DTC).
Properly withdrawn Restricted Notes may be retendered by following one of the
procedures described above under "Procedures for Tendering" at any time prior to
the Expiration Date.
Certain Conditions to the Exchange Offer
The Company will not be required to accept for exchange, or to issue
Exchange Notes for, any Restricted Notes, and may terminate or amend the
Exchange Offer before the acceptance of such Restricted Notes if, in the
Company's judgment, any of the following conditions has occurred:
o the Exchange Offer, or the making of any exchange by a
Holder of Restricted Notes, violates applicable law or any
applicable interpretations of the Commission staff;
o any governmental approval has not been obtained, which
approval the Company shall, in its sole discretion, deem
necessary for the consummation of the Exchange Offer as
contemplated hereby;
824915.10
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o any action or proceeding shall have been instituted or
threatened in any court or by or before any governmental
agency or body with respect to the Exchange Offer; or
o there has been adopted or enacted any law, statute, rule or
regulation that can reasonably be expected to impair the
ability of the Company to proceed with the Exchange Offer.
See "Expiration Date; Extensions; Amendments" above for a discussion of
possible Company actions if any of the foregoing conditions occur.
In addition, the Company will not accept for exchange any Restricted
Notes tendered, and no Exchange Notes will be issued in exchange for any such
Restricted Notes, if at such time any stop order shall be threatened or in
effect with respect to either the registration statement of which this
Prospectus constitutes a part or the qualification of the indenture governing
the Notes under the Trust Indenture Act of 1939, as amended.
The foregoing conditions are for the sole benefit of the Company. They
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights will not be deemed a waiver of
any such right, and each such right will be deemed an ongoing right which may be
asserted at any time and from time to time.
Exchange Agent
IBJ Whitehall Bank & Trust Company has been appointed as Exchange Agent
for the Exchange Offer. The executed Letters of Transmittal, certificated
Restricted Notes to be tendered, and any other required documentation should be
delivered to the Exchange Agent at one of the addresses set forth below.
Requests for assistance and requests for additional copies of this Prospectus,
the Letter of Transmittal or Notices of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
BY OVERNIGHT COURIER OR BY HAND:
IBJ Whitehall Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar One (SC-1)
BY REGISTERED OR CERTIFIED MAIL:
IBJ Whitehall Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, New York 10274-0084
Attention: Reorganization Operations Department
BY FACSIMILE (for Eligible Institutions only): 212-858-2611
CONFIRMATION BY TELEPHONE: 212-858-2103
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
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Solicitation of Tenders; Fees and Expenses
The principal solicitation pursuant to the Exchange Offer is being made
by the Company by mail and through the facilities of DTC. Additional
solicitations may be made by officers and regular employees of the Company and
its affiliates in person or by telephone, facsimile transmission, electronic
communication or similar methods.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company will, however,
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and expenses
incurred in connection with the Exchange Offer and will indemnify the Exchange
Agent for all losses and claims incurred by it as a result of the Exchange
Offer. The Company may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus, the Letter of Transmittal and related
documents to the beneficial owners of the Restricted Notes and in handling or
forwarding tenders for exchange.
The Company will pay all expenses incurred in connection with the
Exchange Offer, including fees and expenses of the trustee, accounting and legal
fees, and printing costs.
The Company will pay any transfer taxes applicable to the exchange of
Restricted Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Restricted Notes pursuant to
the Exchange Offer (for instance, if Exchange Notes and/or substitute Restricted
Notes not exchanged are to be delivered to, or are to be registered or issued in
the name of, any person other than the registered holder of the tendered
Restricted Notes, or if tendered Restricted Notes are registered in the name of
any person other than the person signing the Letter of Transmittal), then the
amount of any such transfer taxes, whether imposed on the registered Holder or
any other person, will be payable by the tendering Holder.
Interest on the Exchange Notes
Interest on the Exchange Notes will accrue from the last interest
payment date on which interest was paid on the Restricted Notes surrendered in
exchange therefor or, if no interest has been paid on the Restricted Notes, from
February 25, 1999. The Exchange Notes will bear interest at a rate of 12% per
annum. Interest on the Exchange Notes will be payable semi-annually on June 15
and December 15 of each year.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the
Restricted Notes (which is face value), as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by the Company as a result of the consummation of
the Exchange Offer. The expense of the Exchange Offer will be amortized by the
Company over the term of the Exchange Notes.
Consequences of a Failure to Exchange Restricted Notes
Following consummation of the Exchange Offer, assuming the Company has
accepted for exchange all validly tendered Restricted Notes, the Company expects
to have no further obligations to any of its noteholders under the Registration
Rights Agreement, except under certain limited circumstances. All untendered
Restricted Notes outstanding after consummation of the Exchange Offer will
continue to be valid and enforceable debt obligations of the Company, fully and
unconditionally guaranteed by the Company's domestic subsidiaries, subject to
the restrictions on transfer set forth in the indenture governing the Notes.
Holders of such Restricted Notes will only be able to offer for sale, sell or
otherwise transfer untendered Restricted Notes as follows:
824915.10
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o to the Company, although the Company has no obligation to
purchase untendered Restricted Notes except if they are
called for redemption in accordance with the provisions of
the indenture governing the Notes;
o pursuant to a registration statement that has been declared
effective under the Securities Act, although the Company
will have no obligation, and does not intend, to file any
such registration statement;
o for so long as the Restricted Notes are eligible for resale
pursuant to Rule 144A under the Securities Act, to a person
reasonably believed to be a qualified institutional buyer,
or QIB, within the meaning of Rule 144A, that purchases for
its own account or for the account of a QIB to whom notice
is given that the transfer is being made in reliance on the
exemption from the registration requirements of the
Securities Act provided by Rule 144A;
o pursuant to offers and sales that occur outside the United
States to foreign persons in transactions complying with the
provisions of Regulation S under the Securities Act;
o to an institutional "accredited investor" within the meaning
of Rule 501(a)(1), (2), (3) or (7) under the Securities Act
purchasing for its own account or for the account of an
institutional accredited investor; or
o pursuant to any other available exemption from the
registration requirements of the Securities Act and
applicable state securities laws.
The tender of Restricted Notes pursuant to the Exchange Offer will
reduce the principal amount of the Restricted Notes outstanding, which may have
an adverse effect upon, and increase the volatility of, the market price of the
Restricted Notes due to a reduction in liquidity.
Absence of a Public Market
Although holders of Exchange Notes who are not "affiliates" of the
Company within the meaning of the Securities Act may resell or otherwise
transfer their Exchange Notes without compliance with the registration
requirements of the Securities Act, there is no existing market for the Exchange
Notes, and there can be no assurance as to the liquidity of any markets that may
develop for the Exchange Notes, the ability of holders of Exchange Notes to sell
their Exchange Notes or the prices at which holders would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities.
824915.10
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DESCRIPTION OF THE NOTES
The Exchange Notes will be issued under an Indenture, dated as of
February 25, 1999 (the "Indenture"), among the Company, as issuer, the Company's
domestic subsidiaries (the "Subsidiary Guarantors") and IBJ Whitehall Bank &
Trust Company (the "Trustee"). A copy of the Indenture is available upon request
from the Company. The following summary of certain provisions of the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Whenever particular defined terms of
the Indenture not otherwise defined herein are referred to, such defined terms
are incorporated herein by reference. For definitions of certain capitalized
terms used in the following summary, see "--Certain Definitions." As used in
this "Description of the Notes" section, (i) the "Company" means Marvel
Enterprises, Inc. and its successors under the Indenture, but not any of its
subsidiaries and (ii) "Holders" means holders of either Restricted Notes or
Exchange Notes.
The terms of the Exchange Notes are identical in all material respects
to the terms of the Restricted Notes, except that the offer of the Exchange
Notes will have been registered under the Securities Act and, therefore, the
Exchange Notes will not be subject to certain transfer restrictions. In
addition, the Exchange Notes will not have the benefit of the registration
rights and certain provisions providing for an increase in the interest rate of
the Notes under certain circumstances contained in the Registration Rights
Agreement.
General
The Notes will be unsecured unsubordinated obligations of the
Company, initially limited to $250.0 million aggregate principal amount, and
will mature on June 15, 2009. Each Note will initially bear interest at 12% per
annum from the Closing Date or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semiannually (to Holders
of record at the close of business on June 1 or December 1 immediately preceding
the Interest Payment Date) on June 15 and December 15 of each year, commencing
June 15, 1999.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, the City of New York (which
initially will be the corporate trust office of the Trustee at One State Street,
New York, New York 10004; provided that, at the option of the Company, payment
of interest may be made by check mailed to the Holders at their addresses as
they appear in the Security Register.
The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "--Book-Entry; Delivery and Form." No service charge will
be made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and
applicable law, the Company may issue additional Notes under the Indenture. The
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
Optional Redemption
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after June 15, 2004 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or
824915.10
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prior to the Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing June 15 of the years
set forth below:
Redemption
Year Price
-------- -----------
2004................................... 106.000%
2005................................... 104.000
2006................................... 102.000
2007 and thereafter.................... 100.000
In addition, at any time prior to June 15, 2002, the Company may
redeem up to 35% of the principal amount of the Notes with the Net Cash Proceeds
of one or more sales of Capital Stock of the Company (other than Disqualified
Stock), at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 112%, plus accrued and unpaid
interest to the Redemption Date (subject to the rights of Holders of record on
the relevant Regular Record Date that is prior to the Redemption Date to receive
interest due on an Interest Payment Date); provided that at least 65% of the
aggregate principal amount of Notes originally issued remains outstanding after
each such redemption and notice of any such redemption is mailed within 60 days
after such sale of Capital Stock.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
Guarantees
Payment of the principal of, premium, if any, and interest on the
Notes will be guaranteed, jointly and severally, on an unsecured senior basis by
the Subsidiary Guarantors. Initially, all Restricted Subsidiaries other than Toy
Biz International Ltd. and Compania de Juguetes Mexicanos will be Subsidiary
Guarantors. Each future Restricted Subsidiary which is not a Foreign Subsidiary
will be required to enter into a supplemental indenture pursuant to which such
Restricted Subsidiary will guarantee the obligations of the Company under the
Notes. In addition, if any Restricted Subsidiary becomes a guarantor or obligor
in respect of any other Indebtedness of the Company or any Restricted
Subsidiary, the Company will cause such Restricted Subsidiary to Guarantee the
Company's obligations under the Notes. See "--Covenants--Limitation on Issuances
of Guarantees by Restricted Subsidiaries."
The obligations of each Subsidiary Guarantor under its Note Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
Federal or state laws. Each Subsidiary Guarantor that makes a payment or
distribution under its Note Guarantee will be entitled to a contribution from
any other Subsidiary Guarantor in a pro rata amount based on the net assets of
each Subsidiary Guarantor determined in accordance with GAAP. See "Risk
Factors--Federal and state statutes allow courts, under specific circumstances,
to void guarantees and require noteholders to return payments received from
guarantors."
The Note Guarantee issued by any Subsidiary Guarantor or Restricted
Subsidiary will be automatically and unconditionally released and discharged
upon (i) any sale, exchange or transfer to any Person not an Affiliate of the
Company of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Subsidiary
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Guarantor or Restricted Subsidiary or (ii) the designation of such Subsidiary
Guarantor or Restricted Subsidiary as an Unrestricted Subsidiary, in each case
in compliance with the terms of the Indenture.
Sinking Fund
There will be no sinking fund payments for the Notes.
Ranking
The Indebtedness evidenced by the Notes will rank pari passu in right
of payment with all future unsubordinated indebtedness of the Company and senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The Notes will be effectively subordinated to all secured indebtedness
of the Company.
Each Note Guarantee will rank pari passu in right of payment with all
other existing and future unsubordinated obligations of such Subsidiary
Guarantor and senior in right of payment to all future obligations of such
Subsidiary Guarantor expressly subordinated in right of payment to the Note
Guarantee of such Subsidiary Guarantor. Each Note Guarantee, however, will be
effectively subordinated to secured indebtedness of the respective Subsidiary
Guarantor with respect to the assets of such Subsidiary Guarantor securing such
obligations.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at
the time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary; provided that Indebtedness
of such Person which is redeemed, defeased, retired or otherwise repaid at the
time of or immediately upon consummation of the transactions by which such
Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be
Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication):
(i) the net income of any Person that is not a Restricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period;
(ii) the net income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired
by the Company or any of its Restricted Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to
sales of assets;
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(v) solely for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on Preferred Stock of the Company
owned by Persons other than the Company and any of its Restricted
Subsidiaries; and
(vi) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, (c) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the extent
that the consideration received would satisfy clause (B) of the "Limitation on
Asset Sales"
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covenant, (d) worn-out or obsolete equipment or assets that, in the Company's
reasonable judgment, are either no longer used or useful in the business of the
Company and the Restricted Subsidiaries or (e) any transfers that, but for this
clause (e), would be Asset Sales, if after giving effect to such transfers, the
aggregate fair market value of the properties or assets transferred in such
transaction or any such series of related transactions does not exceed $500,000.
"Attributable Indebtedness" when used with respect to any
Sale-Leaseback Transaction, means, as at the time of determination, the present
value (discounted at a rate equivalent to the Company's then-current weighted
average cost of funds for borrowed money as at the time of determination,
compounded on a semi-annual basis) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in any such
Sale-Leaseback Transaction.
"Average Life" means, at any date of determination with respect to
any debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Avoidance Litigation Trust" has the meaning set forth in the Plan.
"Beneficial Owner" (including, with correlative meaning,
"Beneficially Owned") has the meaning set forth in Rule 13d-3 under the Exchange
Act.
"Beneficially Owned Directly" means Beneficially Owned without taking
into account any agreement or other arrangement or understanding (including the
Stockholders Agreement).
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding on
the Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other
than an Excluded Stockholder or Excluded Group, becomes the Beneficial Owner of
more than 35% of the total voting power of the Voting Stock of the Company on a
fully diluted basis and such ownership represents a greater percentage of the
total voting power of the Voting Stock of the Company, on a fully diluted basis,
than is held by the Excluded Stockholders on such date; provided that the
Persons party to the Stockholders Agreement on the Closing Date and their
Affiliates shall not constitute a "group" for purposes of this clause (i) solely
as a result of being a party to the Stockholders Agreement so long as no Person
party to the Stockholders Agreement Beneficially Owns Directly a greater
percentage of the voting power of the Voting Stock of the Company than is
Beneficially Owned Directly by the Excluded Stockholders or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new
directors whose election to the Board of Directors or whose nomination by the
Board of Directors for election by the Company's stockholders was approved (a)
by a vote of at least a majority of the members of the Board of Directors then
in office who either were members of the Board of Directors on the Closing Date
or whose election or nomination for election was previously so approved, (b)
pursuant to the terms of the Stockholders Agreement so long as no Person party
to the Stockholders Agreement Beneficially Owns Directly a greater percentage of
the voting power of the Voting Stock of the Company than is Beneficially Owned
Directly by the Excluded Stockholders, or (c) by
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an Excluded Stockholder) cease for any reason to constitute a majority of the
members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are originally
issued under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated
Net Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income: (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; Indebtedness
that is Guaranteed or secured by the Company or any of its Restricted
Subsidiaries (other than Indebtedness Guaranteed pursuant to the Panini
Guaranty, except to the extent the Company or any Restricted Subsidiary actually
pays interest on such Indebtedness); and all interest payable with respect to
discontinued operations) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
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"Disqualified Stock" means any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below. The Company's outstanding 8% Preferred Stock would
not constitute Disqualified Stock under the Indenture.
"Excess Administration Expense Claims Note" means a promissory note
to be issued under the Plan by the Company to Zib Inc. or one of its Affiliates,
the proceeds of which will be used by the Company to pay administration expense
claims related to the bankruptcy of Marvel Entertainment Group, Inc.; provided
that the aggregate amount of such note does not exceed $10 million.
"Excluded Group" means a "group" (within the meaning of Section 13(d)
or 14(d)(2) of the Exchange Act) that includes one or more of the Excluded
Stockholders; provided that a majority of the voting power of the Voting Stock
of the Company Beneficially Owned by such group is Beneficially Owned Directly
by such Excluded Stockholder(s).
"Excluded Stockholder" means (i) Isaac Perlmutter or Avi Arad or any
of their respective Affiliates, (ii) any spouse or any one or more lineal
descendants of the Persons included in the foregoing clause (i) and their
respective spouses and each of their respective Affiliates and (iii) any trust
established solely for the benefit of, and any charitable trust or foundation
established by, any one or more of the Persons included in the foregoing clauses
(i) and (ii); provided that each such Person included in the foregoing clauses
(ii) and (iii) shall only be deemed to be an Excluded Stockholder to the extent
such Person's Capital Stock of the Company was received directly or indirectly
from Isaac Perlmutter or Avi Arad, respectively.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"Foreign Subsidiary" means any Subsidiary of the Company that is an
entity which is a controlled foreign corporation under Section 957 of the
Internal Revenue Code.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in the Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in
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connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(i) all indebtedness of such Person for borrowed money;
(ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of credit
or other similar instruments (including reimbursement obligations with
respect thereto, but excluding obligations with respect to letters of
credit (including trade letters of credit) securing obligations (other
than obligations described in (i) or (ii) above or (v), (vi) or (vii)
below) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement);
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except Trade Payables;
(v) all Capitalized Lease Obligations and other Attributable
Indebtedness;
(vi) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness;
(vii) all Indebtedness of other Persons Guaranteed by such Person to
the extent such Indebtedness is Guaranteed by such Person;
(viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements; and
(ix) all Disqualified Stock of such Person.
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The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, (B) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund the
payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest, (C) that the amount of Indebtedness at any time of any Disqualified
Stock shall be the maximum fixed redemption or repurchase or repurchase price of
such Disqualified Stock where the "maximum fixed redemption or repurchase price"
of any Disqualified Stock which does not have a fixed redemption or repurchase
price shall be calculated in accordance with the terms of such Disqualified
Stock as if such Disqualified Stock were purchased or redeemed at such time, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution and (D) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Company and its Affiliates.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio
of (i) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have been filed
with the Commission or provided to the Trustee (the "Four Quarter Period") to
(ii) the aggregate Consolidated Interest Expense during such Four Quarter
Period. In making the foregoing calculation, (A) pro forma effect shall be given
to any Indebtedness Incurred or repaid during the period (the "Reference
Period") commencing on the first day of the Four Quarter Period and ending on
the Transaction Date (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement) in
effect on the last day of such Four Quarter Period unless any portion of such
Indebtedness is projected, in the reasonable judgment of the senior management
of the Company, to remain outstanding for a period in excess of 12 months from
the date of the Incurrence thereof), in each case as if such Indebtedness had
been Incurred or repaid on the first day of such Reference Period; (B)
Consolidated Interest Expense attributable to interest on any Indebtedness
(whether existing or being Incurred) computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the
Transaction Date (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months or, if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire period; (C) pro forma
effect shall be given to Asset Dispositions and Asset Acquisitions (including
giving pro forma effect to the application of proceeds of any Asset Disposition)
that occur during such Reference Period as if they had occurred and such
proceeds had been applied on the first day of such Reference Period; and (D) pro
forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction
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Date of the Person, or division or line of business of the Person, that is
acquired or disposed for which financial information is available.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as an
account or licensing receivable, prepaid expenses or deposits on the balance
sheet of the Company or its Restricted Subsidiaries) or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the retention of
the Capital Stock (or any other Investment) by the Company or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Subsidiary, including without limitation, by reason of any transaction permitted
by clause (iii) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, the amount of or a reduction in an Investment shall be equal to
the fair market value thereof at the time such Investment is made or reduced.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"MAFCO Litigation Trust" has the meaning set forth in the Plan.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
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"Note Guarantee" means (i) any guarantee of the obligations of the
Company under the Indenture and the Notes by any Subsidiary Guarantor and (ii)
any Subsidiary Guarantee.
"Offer to Purchase" means an offer to purchase Notes by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating:
(i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata
basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Payment Date");
(iii) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for purchase and a statement that such
Holder is withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Payment Date, the Company shall (i) accept for payment on a
pro rata basis Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Panini Guaranty" means the Guarantee Agreement, dated as of
September 28, 1998, among the Company, certain subsidiaries of the Company and
The Chase Manhattan Bank.
"Panini Indemnity" has the meaning set forth in the Plan.
824915.10
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"Panini Notes" means debt securities to be issued by the Company
pursuant to and in accordance with the Panini Guaranty; provided that the
aggregate amount of such debt securities does not exceed $27.0 million.
"Permitted Investment" means:
(i) an Investment in the Company or a Subsidiary Guarantor or a
Person which will, upon the making of such Investment, become a Subsidiary
Guarantor or be merged or consolidated with or into or transfer or convey
all or substantially all its assets to, the Company or a Subsidiary
Guarantor; provided that such person's primary business is related,
ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as
expenses in accordance with GAAP;
(iv) stock, obligations or securities received in satisfaction of
judgments;
(v) an Investment in an Unrestricted Subsidiary consisting solely
of an Investment in another Unrestricted Subsidiary;
(vi) Interest Rate Agreements and Currency Agreements designed
solely to protect the Company or its Restricted Subsidiaries against
fluctuations in interest rates or foreign currency exchange rates;
(vii) Investments in the MAFCO Litigation Trust and the Avoidance
Litigation Trust in accordance with their respective terms; provided that
the aggregate amount of such Investments does not exceed $2.1 million plus
the net reduction in Investments made pursuant to this clause (vii)
resulting from distributions on or repayments of such Investments or from
the Net Cash Proceeds from the sale or other disposition of any such
Investment (except in each case to the extent of any gain on such sale or
disposition that would be included in the calculation of Adjusted
Consolidated Net Income for purposes of clause (C)(1) of the "Limitation
on Restricted Payments" covenant) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the definition
of "Investments"); provided that the net reduction in any Investment shall
not exceed the amount of such Investment;
(viii) Investments in any Person (other than an Unrestricted
Subsidiary) received in return for the licensing or sublicensing of use of
any intellectual property to such Person by the Company or any Restricted
Subsidiary in the ordinary course of business; provided that any such
Investment in an Affiliate of the Company must satisfy the requirements of
clause (i) of the second paragraph of the "Limitation on Transactions with
Shareholders and Affiliates" covenant; and
(ix) an Investment in a Restricted Subsidiary which is not a
Subsidiary Guarantor, provided that the aggregate amount of such
Investments does not exceed $5 million plus the net reduction in
Investments made pursuant to this clause (ix) resulting from distributions
on or repayments of such Investments or from the Net Cash Proceeds from
the sale or other disposition of any such Investment (except in each case
to the extent of any gain on such sale or disposition that would be
included in the calculation of Adjusted Consolidated Net Income for
purposes of clause (C)(1) of the "Limitation on Restricted Payments"
covenant) or from such Person becoming a Restricted Subsidiary (valued in
each case as provided in the definition of "Investments"); provided that
the net reduction in any Investment shall not exceed the amount of such
Investment.
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<PAGE>
"Permitted Liens" means:
(i) Liens for taxes, assessments, governmental charges or claims
that are being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made;
(ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted
and for which a reserve or other appropriate provision, if any, as shall
be required in conformity with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations for
the payment of borrowed money);
(v) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real
or personal property acquired after the Closing Date; provided that (a)
such Lien is created solely for the purpose of securing Indebtedness
Incurred, in accordance with the "Limitation on Indebtedness" covenant
described below, to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the
commencement of full operation of such property (b) the principal amount
of the Indebtedness secured by such Lien does not exceed 100% of such cost
and (c) any such Lien shall not extend to or cover any property or assets
other than such item of property or assets and any improvements on such
item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or
its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to
any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or
becomes a part of, any Restricted Subsidiary; provided that such Liens do
not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary;
824915.10
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<PAGE>
(xiii) Liens arising from the rendering of a final judgment or
order against the Company or any Restricted Subsidiary that does not give
rise to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with
the importation of goods;
(xvi) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general parameters customary
in the industry and incurred in the ordinary course of business, in each
case, securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted Subsidiaries from fluctuations in
interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date;
(xviii) Liens on shares of Capital Stock of any Unrestricted
Subsidiary to secure Indebtedness of such Unrestricted Subsidiary;
(xix) licenses or similar rights granted by the Company or any
Restricted Subsidiary in the ordinary course of business;
(xx) any interest or title of a licensor in the property
subject to a license;
(xxi) Liens on or sales of receivables; and
(xxii) Liens securing Indebtedness or other obligations in an
aggregate amount not to exceed $5.0 million.
"Plan" means the Fourth Amended Joint Plan of Reorganization
proposed by Toy Biz, Inc. and certain secured creditors of Marvel Entertainment
Group, Inc. in connection with the bankruptcy of Marvel Entertainment Group,
Inc. which was confirmed by the United States District Court for the District of
Delaware on July 31, 1998, as subsequently amended.
"Registration Rights Agreements" means (i) the Registration Rights
Agreement, dated as of October 1, 1998, among the Company and certain holders of
its capital stock; (ii) the Registration Rights Agreement, dated as of December
8, 1998, among the Company and certain holders of its capital stock; and (iii)
the registration rights provided for in Section 6.18 of the Plan.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, and its successors.
"Sale-Leaseback Transaction" means any transaction whereby the
Company or a Restricted Subsidiary sells or transfers any of its assets or
properties whether now owner of hereafter acquired and then or thereafter leases
such assets or properties or any part thereof or any other assets or properties
which the Company or such
824915.10
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<PAGE>
Restricted Subsidiary, as the case may be, intends to use for substantially the
same purpose or purposes as the assets or properties sold or transferred.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of October 1, 1998, among the Company and certain holders of its capital stock,
as in effect on the closing date.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or any
agency thereof or obligations fully and unconditionally guaranteed by the
United States of America or any agency thereof;
(ii) time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the
laws of the United States of America, any state thereof or any foreign
country recognized by the United States of America, and which bank or
trust company has capital, surplus and undivided profits aggregating in
excess of $100.0 million (or the foreign currency equivalent thereof) and
has outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
(iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above
entered into with a bank or trust company meeting the qualifications
described in clause (ii) above;
(iv) commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P; and
(v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at least
"A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
824915.10
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"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) Panini S.p.A., inactive
Subsidiaries of the Company and any other Subsidiary of the Company that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
824915.10
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Covenants
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (other than the Notes and Indebtedness existing on
the Closing Date); provided that the Company or any Subsidiary Guarantor may
Incur Indebtedness if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be greater than 2.0:1.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
(i) Indebtedness of the Company or any Subsidiary Guarantor
outstanding at any time in an aggregate principal amount (together with
refinancings thereof) not to exceed the greater of (x) $70.0 million, less
any amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below, and (y) the sum of
80% of the book value of the accounts receivable due within one year and
50% of the inventory of the Company and the Restricted Subsidiaries
calculated on a consolidated basis in accordance with GAAP;
(ii) Indebtedness owed (A) to the Company evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary;
provided that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness and
any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes or any Note Guarantees
shall only be permitted under this clause (iii) if (A) in case the Notes
are refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes or any Note Guarantees, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made pari passu with, or
subordinate in right of payment to, the remaining Notes or such Note
Guarantees, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes or any Note Guarantees, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the Notes or such
Note Guarantees at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes or such Note Guarantees and (C)
such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such
new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company or any Subsidiary Guarantor be
refinanced by means of any Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a)
are designed solely to protect the Company or its Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest rates
and (b) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from
824915.10
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Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company
or any Restricted Subsidiary in connection with such disposition;
(v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in an Offer to
Purchase made as a result of a Change of Control or (B) deposited to
defease the Notes as described below under "Defeasance";
(vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company or any Subsidiary Guarantor by any Restricted Subsidiary provided
the Guarantee of such Indebtedness is permitted by and made in accordance
with the "Limitation on Issuance of Guarantees by Restricted Subsidiaries"
covenant described below;
(vii) Indebtedness under the Panini Notes and the Excess
Administration Expense Claims Note;
(viii) Indebtedness Incurred by the Company or any Subsidiary
Guarantor in an aggregate amount outstanding at any time (including
refinancings thereof) not to exceed $20.0 million to finance the cost of
an acquisition of (A) any Person (other than the Company and its
Restricted Subsidiaries) whereby such Person will be merged into or
consolidated with the Company or any of its Restricted Subsidiaries;
provided that such Person's primary business is related, ancillary or
complementary to the business of the Company and its Restricted
Subsidiaries or (B) the property or assets of any Person (other than the
Company and its Restricted Subsidiaries); provided that such property or
assets are related, ancillary or complementary to the business of the
Company and its Restricted Subsidiaries;
(ix) Indebtedness incurred by the Company or any Subsidiary
Guarantor to finance the cost of acquiring equipment, inventory or other
assets (both tangible and intangible) used or useful in the business of
the Company and its Restricted Subsidiaries in an aggregate amount
outstanding at any time (including refinancings thereof) not to exceed
$5.0 million; and
(x) Indebtedness of the Company or any Subsidiary Guarantor (in
addition to Indebtedness permitted under clauses (i) through (ix) above)
in an aggregate principal amount outstanding at any time (together with
refinancings thereof) not to exceed $15.0 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the
Company or a Restricted Subsidiary may Incur pursuant to this "Limitation
on Indebtedness" covenant shall not be deemed to be exceeded, with respect
to any outstanding Indebtedness due solely to the result of fluctuations
in the exchange rates of currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this "Limitation on Indebtedness" covenant, (1)
Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (2) any Liens granted pursuant
to the equal and ratable provisions referred to in the "Limitation on
Liens" covenant described below shall not be treated as Indebtedness. For
purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described in the above clauses,
the Company, in its sole discretion, shall classify, and from time to time
may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses (but may
allocate portions of such Indebtedness between or among such clauses).
824915.10
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Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on or with respect to its Capital Stock (other than (x) dividends
or distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment and
Investments outstanding on the Closing Date, in any Person (such payments or any
other actions described in clauses (i) through (iv) above being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing,
(B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant or
(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) made after the Closing Date shall exceed the sum of
(1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100%
of the amount of such loss) (determined by excluding income resulting from
transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter immediately following the Closing Date and ending on the last day
of the last fiscal quarter preceding the Transaction Date for which
reports have been filed with the Commission or provided to the Trustee
plus
(2) the aggregate Net Cash Proceeds received by the Company after
the Closing Date from the issuance and sale permitted by the Indenture of
its Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, including an issuance or sale permitted by the
Indenture of Indebtedness of the Company for cash subsequent to the
Closing Date upon the conversion of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Company, or from the issuance to a
Person who is not a Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes) plus
(3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments and Investments outstanding on the
Closing Date) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted
Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation
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of Adjusted Consolidated Net Income), or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case
as provided in the definition of "Investments"), not to exceed, in each
case, the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of part (a) of the "Limitation
on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Disqualified Stock) of the Company (or options, warrants
or other rights to acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights
to acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company;
(vi) Investments acquired in exchange for, or out of the proceeds of
a substantially concurrent offering of, Capital Stock (other than
Disqualified Stock) of the Company;
(vii) the declaration or payment of dividends on the Capital Stock
(other than Disqualified Stock) of the Company in an aggregate annual
amount not to exceed 6% of the Net Cash Proceeds received by the Company
after the Closing Date from the sale of such Capital Stock;
(viii) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company held by
officers, directors or employees or former officers, directors or
employees (or other transferees, estates or beneficiaries under their
estates), upon death, disability, retirement, severance or termination of
employment or service pursuant to any agreement under which such shares of
Capital Stock or related rights were issued; provided that the aggregate
consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock after the
Closing Date does not exceed (x) $1.0 million in any calendar year (with
unused amounts in any calendar year being carried over to succeeding
calendar years) or (y) $3.5 million in the aggregate after the Closing
Date;
(ix) payments of cash in lieu of the issuance of fractional shares
upon the exercise of warrants or upon the conversion or exchange of, or
issuance of Capital Stock in lieu of cash dividends on, any Capital Stock
of the Company, which in the aggregate do not exceed $2.0 million;
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(x) any Investment in any Person the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment; provided that the
aggregate amount of Investments made pursuant to this clause (x) does not
exceed the sum of $10.0 million, plus the net reduction in Investments
made pursuant to this clause (x) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds from the sale
or other disposition of any such Investment (except in each case to the
extent of any gain on such sale or other disposition that would be
included in the calculation of Adjusted Consolidated Net Income for
purposes of clause (C)(1) above) or from such Person becoming a Restricted
Subsidiary (valued in each case as provided in the definition of
"Investments"); provided that the net reduction in any Investment shall
not exceed the amount of such Investment;
(xi) loans or advances to Foreign Subsidiaries to pay invoices from
suppliers in an aggregate amount not to exceed $5.0 million outstanding at
any one time; or
(xii) other Restricted Payments in an aggregate amount not to exceed
$5.0 million plus the net reduction in Investments made pursuant to this
clause (xii) resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the sale or other
disposition of any such Investment (except in each case to the extent of
any gain on such sale or disposition that would be included in the
calculation of Adjusted Consolidated Net Income for purposes of clause
(C)(1) above) or from such Person becoming a Restricted Subsidiary (valued
in each case as provided in the definition of "Investments"), provided
that the net reduction in any Investment shall not exceed the amount of
such Investment;
provided that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment acquired in exchange for Capital
Stock referred to in clause (vi) thereof), and the Net Cash Proceeds from any
issuance of Capital Stock referred to in clauses (iii) and (iv), shall be
included in calculating whether the conditions of clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant have been met
with respect to any subsequent Restricted Payments. In the event the proceeds of
an issuance of Capital Stock of the Company are used for the redemption,
repurchase or other acquisition of the Notes, or Indebtedness that is pari passu
with the Notes, then the Net Cash Proceeds of such issuance shall be included in
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness. For purposes of determining
compliance with this "Limitation on Restricted Payments" covenant, in the event
that a transaction meets the criteria of more than one of the types of
Restricted Payments described in the clauses of the immediately preceding
paragraph or any clause of the definition of "Restricted Payment," the Company,
in its sole discretion, shall classify such transaction and only be required to
include the amount and type of such transaction on one of such clauses (but may
allocate such amount between or among such clauses).
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
loans or advances to the Company or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary.
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The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; provided that
the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
(iii) existing with respect to any Person or the property or assets
of such Person acquired by the Company or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired;
(iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (A) that restrict in a customary manner
the subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or
(vi) with respect to a Subsidiary Guarantor, contained in the terms
of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined in good faith by the Company) and (B)
the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest
payments on the Notes.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except:
(i) to the Company or a Wholly Owned Restricted Subsidiary;
(ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries,
to the extent required by applicable law;
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(iii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance or sale; or
(iv) issuances or sales of Common Stock of a Restricted Subsidiary;
provided that the Company or such Restricted Subsidiary applies the Net
Cash Proceeds, if any, of such sale in accordance with clause (A) or (B)
of the "Limitation on Asset Sales" covenant described below.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to Guarantee any Indebtedness of
the Company or any Subsidiary Guarantor which is pari passu with or subordinate
in right of payment to the Notes or Note Guarantees ("Guaranteed Indebtedness"),
unless (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Notes or Note Guarantees,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes or
Note Guarantees, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes or Note Guarantees.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 10% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the disinterested
members of the Board of Directors or (B) for which the Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of an
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Independent Financial Advisor stating that the transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between the Company and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries;
(iii) reasonable director, officer and employee compensation and
other benefits, and indemnification arrangements entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with past practices of the Company or such
Restricted Subsidiary;
(iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company
files a consolidated tax return or with which the Company is part of a
consolidated group for tax purposes;
(v) any issuance or sale of shares of Capital Stock (other than
Disqualified Stock) of the Company or options, warrants or other rights to
acquire such shares of Capital Stock;
(vi) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant;
(vii) any transaction between the Company or any Restricted
Subsidiary and any qualified employee stock ownership program established
for the benefit of the Company's employees and approved by the Board of
Directors, or the establishment or maintenance of any such plan;
(viii) transactions pursuant to and in accordance with (1) the
agreement, dated as of January 1, 1998, between the Company and Tangible
Media, Inc.; provided that such transactions are on an arm's length basis
and in the ordinary course of business, (2) the Employment Agreement,
dated as of September 30, 1998, between the Company and Avi Arad, (3) the
Master Licensing Agreement, dated April 30, 1993, as amended, between the
Company and Avi Arad & Associates, (4) the Cost Sharing Agreement, dated
as of January 1, 1998, between the Company and Tangible Media, Inc., as in
effect on the Closing Date, (5) the Stockholders Agreement, (6) the
Registration Rights Agreements, (7) the Panini Indemnity and (8) the
Excess Administration Expense Claims Note;
(ix) the establishment of, and borrowings and repayments under,
working capital facilities provided by one or more stockholders of the
Company pursuant to commitments in effect on the Closing Date and any
amendment, termination or refinancing of such working capital facilities
approved by a majority of the disinterested members of the Board of
Directors;
(x) any transaction contemplated by the Plan between the Company and
the Avoidance Litigation Trust; and
(xi) the payment of fees to Morgan Stanley & Co. Incorporated or its
Affiliates for financial, advisory, consulting or investment banking
services that the Board of Directors deems advisable or appropriate
(including, without limitation, the payment of any underwriting discounts
or commissions or placement agency fees in connection with the issuance
and sale of securities).
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on Transactions
with Shareholders and Affiliates" covenant and not covered by clauses (ii)
through (xi) of this paragraph, (a) the aggregate amount of which exceeds $1.0
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above and (b) the aggregate amount of which
exceeds $5.0 million in value, must be determined to be fair in the manner
provided for in clause (i)(B) above.
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Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to:
(i) Liens existing on the Closing Date;
(ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (iii)
of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets
of the Company or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced;
(v) Liens securing Indebtedness Incurred under clause (i) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(vi) Liens on and pledges of the Capital Stock of an Unrestricted
Subsidiary securing indebtedness of such Unrestricted Subsidiary;
(vii) Liens securing letters of credit entered into in the ordinary
course of business and consistent with past business practice; or
(viii) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary
to, enter into any Sale-Leaseback Transaction.
The foregoing restriction does not apply to any Sale-Leaseback
Transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of the "Limitation on Asset Sales" covenant described below.
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Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless (i) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the fair market value
of the assets sold or disposed of and (ii) at least 75% of the consideration
received consists of cash or Temporary Cash Investments or the assumption of
Indebtedness of the Company or any Restricted Subsidiary (other than
Indebtedness to the Company or any Restricted Subsidiary), provided that the
Company or such Restricted Subsidiary is irrevocably and unconditionally
released from all liability under such Indebtedness.
In the event and to the extent that the Net Cash Proceeds received by
the Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission or provided to the Trustee), then the Company shall or shall
cause the relevant Restricted Subsidiary to:
(i) within twelve months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or any
Subsidiary Guarantor or Indebtedness of any other Restricted Subsidiary,
in each case owing to a Person other than the Company or any of its
Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement), in property or assets
(other than current assets) of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type,
or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Restricted
Subsidiaries existing on the date of such investment and
(ii) apply (no later than the end of the 12-month period referred to
in clause (i)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $5.0 million, the
Company must commence, not later than the fifteenth Business Day of such month,
and consummate an Offer to Purchase from the Holders (and if required by the
terms of any Indebtedness that is pari passu with the Notes ("Pari Passu
Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata
basis an aggregate principal amount of Notes (and Pari Passu Indebtedness) equal
to the Excess Proceeds on such date, at a purchase price equal to 100% of the
principal amount thereof, plus, in each case, accrued interest (if any) to the
Payment Date.
For purposes of the first paragraph of this "Limitation on Asset
Sales" covenant, securities received by the Company or any Restricted Subsidiary
in any Asset Sale that are promptly (but in any event within 60 days after such
Asset Sale) converted by the Company or such Restricted Subsidiary into cash,
shall be deemed to be cash.
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Repurchase of Notes upon a Change of Control
The Company must commence, within 30 days of the occurrence of a
Change of Control, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest (if any) to the Payment Date. The Company will not be
required to make an Offer to Purchase pursuant to this covenant if a third party
makes an Offer to Purchase in compliance with this covenant and repurchases all
Notes validly tendered and not withdrawn under such Offer to Purchase.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
Commission Reports and Reports to Holders
Whether or not the Company is then required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject
thereto. The Company shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information.
Events of Default
The following events will be defined as "Events of Default" in the
Indenture:
(a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30
days;
(c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on
Asset Sales" or "Repurchase of Notes upon a Change of Control" covenant;
(d) the Company or any Subsidiary Guarantor defaults in the
performance of or breaches any other covenant or agreement of the Company
in the Indenture or under the Notes (other than a default specified in
clause (a), (b) or (c) above) and such default or breach continues for a
period of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company, any Subsidiary Guarantor or any Significant Subsidiary
having an outstanding principal amount of $5.0 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness to
be due and payable prior to its Stated Maturity and such Indebtedness has
not been discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure to
make a principal payment at the final (but not any interim) fixed maturity
and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default;
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(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company, any Subsidiary Guarantor or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any
period of 30 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company, any Subsidiary Guarantor
or any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company, any Subsidiary Guarantor
or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company, any Subsidiary Guarantor or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs
of the Company, any Subsidiary Guarantor or any Significant Subsidiary
and, in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days;
(h) the Company, any Subsidiary Guarantor or any Significant
Subsidiary (A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to
the entry of an order for relief in an involuntary case under any such
law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company, any Subsidiary Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, any Subsidiary Guarantor or any Significant
Subsidiary or (C) effects any general assignment for the benefit of
creditors; or
(i) except as permitted by the Indenture, any Subsidiary Guarantor
repudiates its obligations under any Note Guarantee.
If an Event of Default (other than an Event of Default specified in
clause (g) or (h) above that occurs with respect to the Company or a Subsidiary
Guarantor) occurs and is continuing under the Indenture, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes, then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee at the written request of such
Holders shall, declare the principal of, premium, if any, and accrued interest
on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal, premium, if any, and accrued interest shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) above occurs with respect to the
Company or a Subsidiary Guarantor, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any
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trust or power conferred on the Trustee. However, the Trustee may refuse to
follow any direction that conflicts with law or the Indenture, that may involve
the Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of Holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of Notes. A
Holder may not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a continuing Event of
Default; (ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the Holders of a majority
in aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture will require certain officers of the Company to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of the Company and its
Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under the Indenture and that the Company has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the Trustee in writing of
any default or defaults in the performance of any covenants or agreements under
the Indenture.
Consolidation, Merger and Sale of Assets
Neither the Company nor any Subsidiary Guarantor will consolidate
with, merge with or into, or sell, convey, transfer, lease or otherwise dispose
of all or substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company or such Subsidiary Guarantor, as the case may be, unless:
(i) the Company or such Subsidiary Guarantor, as the case may be,
shall be the continuing Person, or the Person (if other than the Company
or such Subsidiary Guarantor) formed by such consolidation or into which
the Company or such Subsidiary Guarantor is merged or that acquired or
leased such property and assets of the Company or such Subsidiary
Guarantor shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, all of the obligations of (A) the Company on all of the Notes
and under the Indenture or (B) such Subsidiary Guarantor under the
Indenture, as the case may be;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to any such transaction
involving the Company, on a pro forma basis, the Company or any Person
becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction;
(iv) in the case of a transaction involving the Company, immediately
after giving effect to such transaction on a pro forma basis the Company,
or any Person becoming the successor obligor of the Notes, as the case may
be, could Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant; provided that this clause
(iv) shall not apply to a consolidation, merger or sale of all (but not
less than all) of the assets of the Company if all Liens and Indebtedness
of the Company or
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any Person becoming the successor obligor on the Notes, as the case may
be, and its Restricted Subsidiaries outstanding immediately after such
transaction would have been permitted (and all such Liens and
Indebtedness, other than Liens and Indebtedness of the Company and its
Restricted Subsidiaries outstanding immediately prior to the transaction,
shall be deemed to have been Incurred) for all purposes of the Indenture;
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with; and
(vi) in the case of a transaction involving the Company, each
Subsidiary Guarantor and each Restricted Subsidiary which has provided a
Subsidiary Guarantee, unless such Subsidiary Guarantor or Restricted
Subsidiary is the Person with which the Company has entered into a
transaction under this "Consolidation, Merger and Sale of Assets" section,
shall have by amendment to its Note Guarantee confirmed that its Note
Guarantee shall apply to the obligations of the Company or the surviving
entity in accordance with the Notes and the Indenture.
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company or any
Subsidiary Guarantor and any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations and provided, further, that
clauses (i), (ii) and (v) above shall not apply to any transaction solely
between or among the Company and/or one or more Subsidiary Guarantors where the
Company or a Subsidiary Guarantor is the continuing Person.
Defeasance
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things:
(A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Notes on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Notes,
(B) the Company has delivered to the Trustee (i) either (x) an
Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of the Company's
exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must
be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days
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following the deposit, the trust fund will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of the New
York Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound and
(D) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel
to the effect that the Notes will not be delisted as a result of such
deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause (d)
under "Events of Default" with respect to such other covenants and clauses (e)
and (f) under "Events of Default" shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by the Company to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the
Company exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
will remain liable for such payments and the Subsidiary Guarantor's Note
Guarantee with respect to such payments will remain in effect.
Modification and Waiver
The Indenture may be amended, without the consent of any Holder, to:
(i) cure any ambiguity, defect or inconsistency in the Indenture; provided that
such amendments do not adversely affect the interests of the Holders in any
material respect; (ii) comply with the provisions described under
"Consolidation, Merger and Sale of Assets"; (iii) comply with any requirements
of the Commission in connection with the qualification of the Indenture under
the Trust Indenture Act; (iv) evidence and provide for the acceptance of
appointment by a successor Trustee; or (v) make any change that, in the good
faith opinion of the Board of Directors (as set forth in a resolution of the
Board of Directors), does not materially and adversely affect the rights of any
Holder. Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the
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principal amount of, or premium, if any, or interest on, any Note, (iii) change
the place or currency of payment of principal of, or premium, if any, or
interest on, any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of a
redemption, on or after the Redemption Date) of any Note, (v) waive a default in
the payment of principal of, premium, if any, or interest on the Notes, (vi)
release any Subsidiary Guarantor from its Note Guarantee, except as provided in
the Indenture or (vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
No Personal Liability of Incorporators, Stockholders, Officers, Directors,
or Employees
The Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
Concerning the Trustee
The Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties, and in accordance with such standards, as are specifically set forth in
such Indenture. If an Event of Default has occurred and is continuing, the
Trustee will use the same degree of care and skill in its exercise of the rights
and powers vested in it under the Indenture as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
Book-Entry; Delivery and Form
The certificates representing the Notes will be issued in fully
registered form without interest coupons. Notes sold in offshore transactions in
reliance on Regulation S under the Securities Act will initially be represented
by one or more permanent global Notes in definitive, fully registered form
without interest coupons (each a "Regulation S Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel Bank.
Notes sold in reliance on Rule 144A will be represented by one or
more permanent global Notes in definitive, fully registered form without
interest coupons (each a "Restricted Global Note"; and together with the
Regulation S Global Notes, the "Global Notes") and will be deposited with the
Trustee as custodian for, and registered in the name of a nominee of, DTC.
Each Global Note (and any Notes issued in exchange therefor) will be
subject to certain restrictions on transfer.
Notes transferred to Institutional Accredited Investors who are not
qualified institutional buyers ("Non-Global Purchasers") will be in registered
form without interest coupons ("Certificated Notes"). Upon the transfer
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of Certificated Notes initially issued to a Non-Global Purchaser to a qualified
institutional buyer or in accordance with Regulation S, such Certificated Notes
will, unless the relevant Global Note has previously been exchanged in whole for
Certificated Notes, be exchanged for an interest in a Global Note.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
Investors may hold their interests in a Regulation S Global Note
directly through Cedel Bank or Euroclear, if they are participants in such
systems, or indirectly through organizations that are participants in such
system. On or after the 40th day following the Closing Date, investors may also
hold such interests through organizations other than Cedel Bank or Euroclear
that are participants in the DTC system. Cedel Bank and Euroclear will hold
interests in the Regulation S Global Notes on behalf of their participants
through DTC.
So long as DTC, or its nominee, is the registered owner or holder of
a Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the
ordinary way in accordance with DTC rules and will be settled in same-day funds.
Transfers between participants in Euroclear and Cedel Bank will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
The Company expects that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for Certificated Notes, which it will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a
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"Clearing Agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participants and
facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies and certain other organizations that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants of DTC, Euroclear and Cedel Bank, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility or, with respect to the Trustee, liability for the
performance by DTC, Euroclear or Cedel Bank or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive Certificated
Notes in accordance with the DTC's rules and procedures in addition to those
provided for under the Indenture.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Restricted Notes where such Restricted Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that, starting on the Expiration Date and ending on the close of business
on the 180th day following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Restricted Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Company has not entered into any arrangements or understandings
with any person to distribute the Exchange Notes to be received in the Exchange
Offer.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income
tax consequences of the acquisition, ownership and disposition of the Notes
offered hereby. The federal income tax considerations set forth below are based
upon currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations ("Treasury Regulations"),
judicial authority, and current administrative rulings and pronouncements of the
Internal Revenue Service (the "IRS"). There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been, or will be,
sought on the issues discussed herein. Legislative, judicial, or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences discussed
below.
As used in this summary, the term "U.S. Holder" means the beneficial
owner of a Note that is for U.S. federal income tax purposes (i) an individual
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income tax regardless of its source, or (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
As used in this summary, the term "Non-United States Holder" means an
owner of a Note that is, for United States federal income tax purposes, (i) a
nonresident alien individual, (ii) a foreign corporation, (iii) a foreign estate
or foreign trust or (iv) a foreign partnership one or more of the members of
which is for United States federal income tax purposes, a nonresident alien
individual or a foreign corporation, estate or trust.
The summary does not address all potential federal tax considerations
that may be relevant to particular Holders and does not address foreign, state,
local or other tax consequences. This summary does not address the federal
income tax consequences to taxpayers who are subject to special treatment under
federal income tax laws (such as insurance companies, financial institutions,
small business investment companies, dealers in securities or currencies,
broker-dealers, U.S. Holders whose functional currency is not the U.S. dollar
and tax-exempt organizations) or Holders that hold Notes as part of a position
in a straddle, or as part of a hedging, conversion, or other integrated
investment transaction for federal income tax purposes. This summary is limited
to Holders that hold the Notes as capital assets within the meaning of section
1221 of the Code.
Each prospective purchaser of the Notes is urged to consult his or her
own tax advisor with respect to his or her particular tax situation affecting
the purchase, holding and disposition of the Notes.
Tax Consequences to U.S. Holders
Interest
Generally, interest paid on the Notes will be taxable to a U.S. Holder
as ordinary income at the time it accrues or is received in accordance with such
U.S. Holder's method of accounting for U.S. federal income tax purposes.
Market Discount
A Note is acquired at a market discount if the purchase price of the
Note is less than its principal amount, subject to a statutory de minimis
exception. Unless a U.S. Holder has elected to include the market discount in
income as it accrues, gain, if any, realized on any subsequent disposition
(other than in connection with certain nonrecognition transactions) or full or
partial principal payment of such Note will be treated as ordinary income
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to the extent of the market discount that has not previously been included in
income and is treated as having accrued during the period such U.S. Holder held
such Note.
Any market discount will be considered to accrue ratably from the date
of acquisition to the maturity date unless the U.S. Holder elects to accrue on a
constant interest rate method. A U.S. Holder may make such election with respect
to any Note but, once made, such election is irrevocable.
A U.S. Holder may elect to include market discount in income as it
accrues through the use of either the straight-line method or the constant
interest method. Once made, this election will apply to all market discount
obligations acquired by the electing U.S. Holder during the taxable year for
which the election is made, and all subsequent taxable years and cannot be
revoked without the consent of the IRS. If an election is made to include market
discount in income currently, the basis of the Note in the hands of the U.S.
Holder will be increased by the amount of the market discount that is included
in income.
Unless a U.S. Holder who acquires a Note at a market discount elects to
include market discount in income currently, such U.S. Holder may be required to
defer deductions for a portion of the interest paid on indebtedness allocable to
such Note in an amount not exceeding the deferred market discount, until such
income is realized.
Bond Premium
If a U.S. Holder purchases a Note and immediately after the purchase
the adjusted basis of the Note exceeds the sum of all amounts payable on the
instrument after the purchase date (other than payments of stated interest), the
Note will be treated as having been acquired with "bond premium." However, if
the Note is purchased at a time when the Note may be optionally redeemed by the
Company for an amount that is in excess of its principal amount, special rules
would apply that could result in a deferral of the amortization of bond premium
until later in the term of the Note. A U.S. Holder may elect to amortize such
bond premium on a constant yield method over the remaining term of such Note
(or, if it results in a smaller amount of amortizable bond premium, until an
earlier call date).
If bond premium is amortized, the amount of interest that must be
included in the U.S. Holder's income for each accrual period, will be reduced by
the portion of premium allocable to such period. If the amortizable bond premium
allocable to an accrual period exceeds the amount of stated interest allocable
to such accrual period, such excess would be allowed as a deduction for such
accrual period, but only to the extent of the U.S. Holder's prior interest
inclusions on the Note; any excess is generally carried forward and allocable to
the next accrual period. A U.S. Holder who elects to amortize bond premium must
reduce his tax basis in the Note by the amount of bond premium amortized. If an
election to amortize bond premium is not made, a U.S. Holder must include the
full amount of each interest payment in income in accordance with his or her
regular method of accounting and may receive a tax benefit (in the form of
capital loss or reduced capital gain) from the premium only in computing such
U.S. Holder's gain or loss upon the sale or disposition or payment of the
principal amount of the Note.
An election to amortize premium will apply to amortizable bond premium
on all notes and other bonds, held or subsequently acquired by the U.S. Holder
on or after the first day of the first taxable year to which the election
applies and may be revoked only with the consent of the IRS.
Exchange Offer
The exchange of Restricted Notes for the Exchange Notes pursuant to the
Exchange Offer should not be a taxable event for U.S. federal income tax
purposes. A U.S. Holder will have the same tax basis and holding period in the
Exchange Notes as the Restricted Notes.
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Disposition of the Notes
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (except to the extent attributable
to accrued interest that has not been included in income) and such U.S. Holder's
adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note
will generally equal the U.S. Holder's purchase price for such Note, increased
by any market discount previously included in income by the U.S. Holder and
decreased by any principal payments received by the U.S. Holders, and by any
amortizable bond premium. Gain or loss realized on the sale, exchange or
retirement of a Note generally will be capital gain or loss. For individuals,
capital gains are generally taxed at a 20% maximum tax rate for Notes held for
more than one year. The deduction of capital losses is subject to certain
limitations.
The Company does not intend to treat the possibility of an optional
redemption or repurchase of the Notes as giving rise to any accrual of original
issue discount or recognition of ordinary income upon redemption, sale or
exchange of a Note.
Backup Withholding
A U.S. Holder (other than certain exempt recipients including
corporations) will be subject to backup withholding at the rate of 31 percent
with respect to interest paid on or the proceeds of a sale, exchange or
redemption of, the Notes if (i) the payee fails to furnish a Taxpayer
Identification Number ("TIN"), (ii) the TIN furnished by the payee is incorrect,
(iii) the payee is notified by the IRS that he or she has failed to report
payments of interest or dividends or (iv) under certain circumstances, the payee
has failed to certify under penalty of perjury that the payee is not subject to
withholding. Amounts paid as backup withholding do not constitute an additional
tax and will be credited against the U.S. Holder's federal income tax liability,
so long as the required information is provided to the IRS. The payor generally
will report to the U.S. Holders of the Notes and to the IRS the amount of tax
withheld, if any.
Tax Consequences to Non-United States Holders
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or 30% withholding tax if such interest
is not effectively connected with the conduct of a trade or business within the
United States (or a permanent establishment therein, if a tax treaty applies) by
such Non-United States Holder and such Non-United States Holder (i) does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company; (ii) is not a controlled foreign
corporation with respect to which the Company is a "related person"; (iii) is
not a bank whose receipt of interest on a Note is described in Section
881(c)(3)(A) of the Code; and (iv) certifies, under penalties of perjury, that
such Holder is not a United States person which certification may be made on IRS
Form W-8BEN or substitute form and provides the Company with such Holder's name
and address or a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business certifies, under penalties of perjury, that such certification and
information has been received by it or a qualifying intermediary from the
Non-United States Holder and furnishes the Company with a copy thereof. With
respect to Notes held by a foreign partnership, under current law, the
certification may be provided by the foreign partnership. However, for interest
and proceeds paid with respect to a Note after December 31, 1999, unless the
foreign partnership has entered into a withholding agreement with the IRS, a
foreign partnership will be required, in addition to providing IRS Form W-8IMY,
to attach an appropriate certification by each partner on IRS Form W-8BEN.
If a Non-United States Holder of a Note is engaged in a trade or
business in the United States, and if interest (including market discount) on
the Note (or gain realized on its sale, exchange or other disposition) is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from withholding tax, will generally be subject
to United States income tax on such effectively connected income
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in the same manner as if it were a U.S. Holder. Such Holder will be required to
provide to the withholding agent a properly executed IRS Form 4224 (or, after
December 31, 2000, a Form W-8ECI) to claim an exemption from withholding tax. In
addition, if such Non-United States Holder is a foreign corporation, it may be
subject to a 30% branch profits tax (unless reduced or eliminated by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments.
Gain on Disposition
A Non-United States Holder will generally not be subject to United
States federal income tax on gain recognized on a sale, redemption or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States (or a permanent
establishment therein, if a tax treaty applies) by the Non-United States Holder,
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual, such Holder is present in the United States for 183 or more days in
the taxable year and certain other conditions are met or (iii) the Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates.
Information Reporting and Backup Withholding
The Company will, where required, report to the Non-United States
Holders of Notes and the IRS the amount of any interest paid on the Notes in
each calendar year and the amounts of tax withheld, if any, with respect to such
payments.
31% backup withholding tax and certain information reporting will not
apply to payments of interest to Non-United States Holders with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the Non-United States Holder is a
United States person or that the conditions of any other exemption are not in
fact satisfied. Information reporting and backup withholding requirements will
apply, however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the Notes by or through a United States office of a United States
or foreign broker, unless such Holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a disposition of
the Notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the Non-United States Holder is
not a United States person, and such broker has no actual knowledge to the
contrary, or the Non-United States Holder establishes an exemption. Neither
information reporting nor backup withholding generally will apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Notes offered
hereby will be passed upon for the Company by Battle Fowler LLP, New York, New
York. Mr. Lawrence Mittman, who is a partner of Battle Fowler LLP, is a director
of the Company.
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EXPERTS
The consolidated financial statements of Marvel Enterprises, Inc.
(formerly Toy Biz, Inc.) and its subsidiaries as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998
incorporated herein by reference to Marvel Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by Ernst &
Young LLP, independent auditors, as stated in their report included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Marvel Entertainment Group,
Inc. and its subsidiaries as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997 incorporated herein by
reference to Marvel Entertainment Group, Inc.'s Annual Report on Form 10-K/A for
the year ended December 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as stated in their report included therein (which contains
an explanatory paragraph describing conditions that raise substantial doubt
about Marvel Entertainment Group, Inc.'s ability to continue as a going concern,
as described in Note 1 to the consolidated financial statements) and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JULY 20, 1999
PROSPECTUS
MARVEL ENTERPRISES, INC.
12% Senior Notes Due 2009
--------------------
Interest payable on June 15 and December 15
--------------------
Marvel may redeem any of the Notes beginning on June 15, 2004. The
initial redemption price is 106% of their principal amount, plus accrued
interest. In addition, before June 15, 2002, Marvel may redeem up to 35% of the
Notes at a redemption price of 112% of their principal amount, plus accrued
interest, using proceeds from certain sales of its capital stock. The Notes will
be guaranteed by each of Marvel's domestic subsidiaries.
--------------------
The Notes will rank equally with our other senior unsecured
indebtedness. The Notes will be junior to our secured indebtedness and all
liabilities of our subsidiaries.
For a more detailed description of the Notes, see "Description of the
Notes" beginning on page 16.
--------------------
Investing in the Notes involves risks. See "Risk Factors"
beginning on page 8.
--------------------
This Prospectus is to be used by Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Dean Witter Reynolds, Inc. ("Dean Witter" and, together
with Morgan Stanley, "Morgan Stanley Dean Witter"), in connection with offers
and sales of the Notes in market-making transactions at negotiated prices
related to prevailing market prices at the time of sale. Morgan Stanley Dean
Witter may act as principal or as agent in such transactions. The Company will
receive no portion of the proceeds of the sales of such Notes and will bear the
expenses incident to the registration thereof. If Morgan Stanley Dean Witter
conducts any market-making activities, it may be required to deliver a
"market-making prospectus" when effecting offers and sales in the Notes because
of the equity ownership of the Company by Morgan Stanley. As of July 12, 1999,
Morgan Stanley owned in the aggregate approximately 8.7% of the outstanding
common stock of the Company, on a converted basis, and was a party to a
Stockholders' Agreement with the Company and certain other principal
stockholders dated as of October 1, 1998. For as long as a market-making
prospectus is required to be delivered, the ability of Morgan Stanley Dean
Witter to make a market in the Notes may, in part, be dependent on the ability
of the Company to maintain a current market-making prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
You should rely only on the information provided or incorporated by
reference in this Prospectus. We have authorized no one to provide you with
different information. You should not assume that the information in this
Prospectus is accurate as of any date other than the date on the front of the
document. Neither the delivery of this Prospectus, nor any offer or sale made
pursuant to this Prospectus, shall under any circumstances create an implication
that the information contained in this Prospectus is correct as of any date
subsequent to the date of this Prospectus.
, 1999
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FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). We have based these statements on
our beliefs and assumptions, based on information currently available to us.
These forward-looking statements are subject to risks and uncertainties.
Forward-looking statements are not guarantees of performance. Our
future results and requirements may differ materially from those described in
the forward-looking statements. Many of the factors that will determine these
results and requirements are beyond our control. You should consider the risks
and uncertainties discussed under "Risk Factors" and, among others, the
following:
o our potential need for additional financing,
o our potential inability to integrate the operations of
Marvel Entertainment Group, Inc. with those of Toy Biz,
Inc.,
o our potential inability to successfully implement our
business strategy,
o a decrease in the level of media exposure or popularity of
our characters resulting in declining revenues from products
based on those characters,
o the lack of commercial success of properties owned by major
entertainment companies that have granted us toy licenses,
o the lack of consumer acceptance of new product
introductions,
o the imposition of quotas or tariffs on toys manufactured in
China as a result of a deterioration in trade relations
between the U.S. and China,
o changing consumer preferences,
o production delays or shortfalls,
o continued pressure by certain of our major retail customers
to significantly reduce their toy inventory levels,
o the impact of competition and changes to the competitive
environment on our products and services,
o changes in technology (including uncertainties associated
with Year 2000 compliance),
o changes in governmental regulation, and
o other factors detailed from time to time in our filings with
the Securities and Exchange Commission (the "Commission").
These forward-looking statements speak only as of the date of this
Prospectus. We do not intend to update or revise any forward-looking statements
to reflect events or circumstances after the date of this Prospectus, including
changes in our business strategy or planned capital expenditures, or to reflect
the occurrence of unanticipated events.
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WHERE YOU CAN FIND MORE INFORMATION
In connection with this offer, the Company has filed with the
Commission a registration statement, under the Securities Act, relating to the
Notes. As permitted by the Commission's rules, this Prospectus omits certain
information included in the registration statement. For a more complete
understanding of the Company and the Notes, you should refer to the registration
statement, including its exhibits.
We also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any document we
file at the Commission's public reference rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549, 7 World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our Commission filings are also
available to the public from the Commission's Website at "http://www.sec.gov."
Our common stock is listed on the New York Stock Exchange. You can obtain
information about us from the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this Prospectus, and information that we file later
with the Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act:
1. Our Annual Report on Form 10-K for the year ended December
31, 1998, and the amendment to that report on Form 10-K/A;
2. Our Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999;
3. Our Current Reports on Form 8-K filed with the Commission on
February 4, 1999, February 24, 1999, February 25, 1999,
March 10, 1999 and July 20, 1999 and our Current Report on
Form 8-K/A-2 filed with the Commission on November 25, 1998
(which incorporates by reference the consolidated financial
statements included in Marvel Entertainment Group, Inc.'s
Annual Report on Form 10-K/A for the year ended December 31,
1997 and its Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998 and June 30, 1998);
4. The descriptions of our common stock and preferred stock
contained in our Registration Statements on Form 8-A filed
on October 2, 1998 (SEC File Nos. 001-13638 and 000-24937);
5. The section entitled "THE MARVEL PROPOSALS -- Securities to
be Issued and Transferred under the Plan" on pages 82 -87 of
our Proxy Statement on Schedule 14A (SEC File No.
001-13638), as filed with the Commission on August 13, 1998,
which includes descriptions of our common stock and
preferred stock;
6. The section entitled "INFORMATION CONCERNING MARVEL" on
pages 29-37 of the Proxy Statement described in the
preceding paragraph, which includes information concerning
Marvel Entertainment Group, Inc.; and
7. The consolidated financial statements and schedule contained
in the Annual Report of Marvel Entertainment Group, Inc. on
Form 10-K/A for the year ended December 31, 1997.
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You may request a copy of these filings, at no cost, by writing us at
the following address: Marvel Enterprises, Inc., 387 Park Avenue South, New
York, New York 10016, Attention: William H. Hardie, III, Corporate Secretary, or
calling us at (212) 696-0808. Exhibits to the documents will not be sent, unless
those exhibits have specifically been incorporated by reference in this
Prospectus.
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TABLE OF CONTENTS
Page
FORWARD-LOOKING STATEMENTS..................................................3
WHERE YOU CAN FIND MORE INFORMATION.........................................4
PROSPECTUS SUMMARY..........................................................7
RISK FACTORS................................................................8
RATIO OF EARNINGS TO FIXED CHARGES.........................................15
USE OF PROCEEDS............................................................15
DESCRIPTION OF THE NOTES...................................................16
PLAN OF DISTRIBUTION.......................................................49
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS....................49
LEGAL MATTERS..............................................................53
EXPERTS ..................................................................53
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PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the details that
may be important to you. You should read this entire Prospectus carefully before
you invest.
About Marvel Enterprises, Inc.
We are an entertainment company. We operate in the licensing, comic
book publishing and toy businesses. We own the copyrights to over 3,500
fictional characters, including Spider-Man, X-Men, Captain America, Fantastic
Four and The Incredible Hulk.
Our company was called "Toy Biz, Inc." until October 1, 1998. On that
day, we acquired Marvel Entertainment Group, Inc., which had been in bankruptcy
since December 1996, and changed our name to Marvel Enterprises, Inc. When we
use the term "MEG" in this Prospectus, we are referring to Marvel Entertainment
Group. The term "Toy Biz, Inc." refers to our company before we acquired MEG.
Our acquisition of MEG was part of a plan of reorganization for Marvel
Entertainment Group that was proposed, and ultimately confirmed by the court, in
Marvel Entertainment Group's bankruptcy case. The transactions consummated on
October 1, 1998 in connection with our acquisition of MEG and MEG's emergence
from bankruptcy are referred to in this Prospectus as the "Reorganization."
We operate through the following three business divisions:
1. Marvel Licensing. Marvel Licensing licenses our characters for use
in television programs, motion pictures, destination-based entertainment (such
as theme parks), on-line media and other consumer products.
2. Marvel Publishing. Marvel Publishing is one of the world's leading
publishers of comic books. We believe that our characters are among the oldest
and most recognizable in the entertainment industry. Marvel Publishing has
published comic books based upon our characters for over 60 years, including
some of the world's most popular comic book titles.
3. Toy Biz. Toy Biz designs, develops, markets and distributes both
innovative and traditional toys in the United States and internationally. Our
toy products fall into three categories: toys based on our characters,
proprietary toys designed and developed by us, and toys based on properties
licensed to us by third parties.
We sold our Fleer/SkyBox sports and entertainment trading card
business in February 1999, an event we refer to in this Prospectus as the "Fleer
Sale." We intend to dispose of our Panini activity stickers and adhesive paper
business, conducted through our wholly-owned subsidiary Panini S.p.A., in 1999.
Our executive offices are located at 387 Park Avenue South, New York,
New York 10016 and our telephone number is (212) 696-0808.
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RISK FACTORS
Our substantial indebtedness could interfere with our ability to pay interest
and principal on the Notes.
Our substantial indebtedness could interfere with our ability to pay
interest and principal on the Notes. Our indebtedness consists of $250.0 million
of Restricted Notes and a guarantee of $27.0 million of the indebtedness of
Panini S.p.A. In addition, our secured working capital facility provides for
borrowings of up to $60.0 million (subject to borrowing base restrictions).
The amount of our indebtedness could have important consequences to
noteholders, including, but not limited to, the following:
o our ability to borrow money or sell stock for working
capital, capital expenditures, acquisitions, general
corporate or other purposes may be limited;
o a substantial portion of whatever cash we make from our
business will be needed to pay the principal of, and
interest on, our indebtedness, thereby reducing the funds
available to operate our business;
o we have made promises in our loan agreements that could
limit our ability to develop our business and expand; and
o our indebtedness may make us more vulnerable to economic
downturns, limit our ability to withstand competitive
pressures and reduce our flexibility in responding to
changing business and economic conditions.
Our ability to pay interest on the Notes, to pay interest on our other
indebtedness, to pay principal on the Notes, to repay our other lenders and to
operate and grow our business will depend on our operating success, which could
be affected by many factors, including general economic conditions and other
factors beyond our control. If we do not fulfill the promises that we made in
our loan agreements, our lenders could demand that we pay back all the money we
owe them under those loan agreements immediately. If the cash we generate by
operating our business, together with borrowings expected to be available under
our working capital facility, is not sufficient to make required payments under
our loan agreements and to cover our other cash requirements, we will need to
renegotiate our loan agreements or to refinance all or a portion of our
indebtedness or to obtain additional financing. It is possible that we will be
unable to renegotiate our loan agreements, refinance that indebtedness or obtain
additional financing.
We may need additional financing.
We believe that the proceeds from the offering of the Restricted Notes,
together with our expected cash flow from operations and borrowings expected to
be available under our working capital facility, will be sufficient to fund our
future growth as contemplated by our business strategy. We cannot assure you,
however, that our business will generate the level of cash flow from operations
that we expect or that future borrowings will be available to us. If our plans
or assumptions change, if our assumptions prove to be inaccurate or if we
experience unanticipated costs or competitive pressures, we may need to seek
additional capital. We cannot assure you that we will be able to obtain such
additional funds. In addition, our working capital facility requires us to
comply with various financial and other covenants in order to borrow under the
facility. We failed to comply with certain financial and other covenants under
the now-terminated $200.0 million bridge loan facility that we obtained from UBS
AG, Stamford Branch ("UBS") on October 1, 1998 and the now-terminated revolving
credit facility with UBS that we also obtained on October 1, 1998.
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If we are unable to obtain any additional funds, it could have a
material adverse effect on us.
Our financing agreements limit our operating flexibility.
Both the indenture that governs the Notes and our working capital
facility constrict us in ways that may limit our financial success. For
instance, they limit our ability to:
o incur additional indebtedness;
o incur liens;
o pay dividends, make investments or make some types of
payments;
o consummate some types of asset sales;
o enter into some types of transactions with affiliates;
o merge or consolidate with any other person; or
o sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of our assets.
Our working capital facility requires us to satisfy various financial
tests. Events beyond our control might cause us to fail those tests. If we fail
any of the tests, our working capital facility lenders will have the right to
demand that we pay back all the money we owe them at once. If we are unable to
repay the money, those lenders might be entitled to sell substantially all our
assets, which we expect will be pledged to the lenders to secure our debt.
A significant portion of our cash flow comes from our subsidiaries.
A significant portion of our operations are conducted through our
subsidiaries and a significant portion of our assets are owned by those
subsidiaries. Accordingly, our cash flow and consequent ability to meet our
obligations will depend, to a significant extent, upon the earnings of those
subsidiaries and the availability of those earnings to us by way of dividends,
distributions, repayments of advances or loans.
Panini S.p.A. and our other foreign subsidiaries will not guarantee the Notes.
Your right to receive payments on the Notes could be adversely affected if any
of our non-guarantor subsidiaries declare bankruptcy, liquidate, or reorganize.
None of our foreign subsidiaries (including Panini S.p.A.) will
guarantee the Notes unless they guarantee other indebtedness. Claims of
creditors (including trade creditors) of those subsidiaries may reduce
significantly the funds otherwise available from the operations of those
subsidiaries. Specifically, in the event of a bankruptcy, liquidation or
reorganization of any of the non-guarantor subsidiaries, holders of their
indebtedness and their trade creditors will generally be entitled to payment of
their claims from the assets of those subsidiaries before any assets are made
available for distribution to us.
The Notes are unsecured. The claims of certain other parties will have priority
over your claims.
The Notes will be effectively subordinated to all of our secured
obligations, including obligations under our secured working capital facility,
to the extent of the assets securing such obligations. Our working capital
facility is secured by substantially all of our assets (other than our
intellectual property and the capital stock of Panini S.p.A.).
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Federal and state statutes allow courts, under specific circumstances, to void
guarantees and require noteholders to return payments received from guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee of the Notes could be voided,
or claims in respect of a subsidiary guarantee could be subordinated to all
other debts of the subsidiary guarantor if, among other things, the subsidiary
guarantor, at the time it incurred the indebtedness evidenced by its subsidiary
guarantee, received less than reasonably equivalent value or fair consideration
for the incurrence of such subsidiary guarantee and:
o was insolvent or rendered insolvent by reason of such
incurrence; or
o was engaged in a business or transaction for which the
subsidiary guarantor's remaining assets constituted
unreasonably small capital; or
o intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature.
In addition, any payment by that subsidiary guarantor pursuant to its
subsidiary guarantee could be voided and required to be returned either to the
subsidiary guarantor or to a fund for the benefit of the creditors of the
subsidiary guarantor.
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, a subsidiary
guarantor would be considered insolvent if:
o the sum of its debts, including contingent liabilities,
were greater than the fair salable value of all of its
assets;
o if the present fair salable value of its assets were less
than the amount that would be required to pay its probable
liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating
history and other factors, we believe that each subsidiary guarantor, after
giving effect to its guarantee of the Notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as they mature. A
court, however, might not agree with our conclusions in this regard.
A significant portion of our assets are intangible assets and may not be
sufficient to repay all of our indebtedness (including the Notes) if secured
creditors foreclose on the assets pledged to them.
A significant portion of our assets consist of copyrights,
trademarks, licenses, goodwill and certain other intangibles. These assets
comprised $487.7 million of our $689.9 million of total assets at December 31,
1998, resulting in negative tangible net worth of $304.1 million. The value of
these assets could be reduced materially in the future due to changing consumer
preferences, our failure to implement our business strategy, competition and
other future trends. As a result, our assets may not be sufficient to repay all
of our indebtedness (including the Notes) if secured creditors foreclose on the
assets pledged to them or if we are forced to dispose of our assets to meet our
obligations.
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Licensing of our intellectual property rights to third parties reduces the value
of those rights in the event of an asset disposition.
Our business strategy is to generate revenue by licensing the right
to use our characters to third parties. This strategy requires us to surrender
some or all of the rights to our characters for varying periods of time. If we
are forced to dispose of our assets to meet our obligations under the Notes (or
other indebtedness), the value we receive for our characters could be reduced to
the extent we have granted rights over those characters to third parties.
In addition, as part of our licensing strategy, we may receive
non-cash consideration for licensing the right to use our characters to third
parties. Non-cash consideration may not provide a cash stream to enable us to
service our obligations under the Notes (or other indebtedness). In addition,
any non-cash consideration may involve considerable credit risk, may not be
convertible into cash and may have no value upon sale.
The financial data of MEG has limited use in evaluating our future performance.
The financial data of MEG is not indicative of our future performance
due to several factors, including: (1) the effects of MEG's acquisition of
Panini S.p.A. on September 1, 1994; (2) MEG's consolidation of its financial
statements with those of Toy Biz, Inc. from March 2, 1995 (the date of Toy Biz,
Inc.'s initial public offering) through June 30, 1997 (the results of operations
of Toy Biz, Inc. after June 30, 1997 are not included in MEG's statement of
operations data); (3) the effects of MEG's acquisition of SkyBox International
Inc. on April 27, 1995; (4) MEG's commencement of bankruptcy proceedings on
December 27, 1996; (5) the Reorganization; (6) the Fleer Sale and (7) the
intended disposition of the Panini business. As a result, there is limited
financial and operating data of MEG for a potential investor to evaluate.
We might not be able to integrate the businesses of Toy Biz, Inc. and MEG.
Our future success will depend in part on our ability to effectively
integrate the businesses of Toy Biz, Inc. and MEG. This process may require a
disproportionate amount of time and attention of our management, financial and
other resources. Although we believe that we have the opportunity for synergies
and cost savings, the timing or amount of synergies or cost savings that may
ultimately be attained is uncertain. Some of the anticipated benefits of the
combination may not be achieved if our operations are not successfully
integrated in a timely manner. The difficulties of that integration may
initially be increased by the necessity of coordinating and integrating
personnel with different business backgrounds and corporate cultures. We might
not be able to integrate effectively Toy Biz, Inc.'s and MEG's operations. If we
are not successful in this combination, if the combination takes longer than
anticipated, or if the integrated operations fail to achieve market acceptance,
our business could be adversely affected. In addition, implementation of our
business strategy will be subject to numerous other contingencies beyond our
control, including, among others, general and regional economic conditions,
interest rates, competition, and the ability to attract and maintain skilled
employees. As a result, the combination might not be successful, our business
strategies might not be effective and we might not be able to achieve our goals.
There have been declines in many of our lines of business in recent periods.
In recent years there has been a decline in many of our businesses, and
that decline may continue. In 1995 and 1996, there was an overall decline in
MEG's core publishing business, its licensing business and its sports and
entertainment trading card business which had a material adverse effect on MEG.
This decline, along with the substantial indebtedness incurred by MEG in
connection with its acquisition program, ultimately led MEG to file for
bankruptcy protection in 1996. MEG's publishing revenues, along with those of
the overall comic book industry, 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. These store
closings further hurt MEG's net publishing revenues. In 1997 and 1998, MEG's
publishing revenues continued
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to decline due to these reasons and MEG's decision to eliminate unprofitable
comic book titles. We do not expect publishing revenues to return to
pre-bankruptcy levels.
MEG's licensing revenues declined significantly from pre-bankruptcy
levels. These revenues decreased from $54.7 million in 1995 to $15.1 million in
1998. There can be no assurance that our licensing revenues will reach MEG's
pre-bankruptcy levels.
The bankruptcy of MEG also caused a decline in our toy business because
a substantial portion of our toy products were based on characters licensed to
us by MEG. Our toy business might not return to its pre-bankruptcy levels. In
addition, during the fourth quarter of 1998, our operations were hurt by the
decision of Toys 'R' Us, one of our major customers, to significantly reduce its
toy inventory levels.
Our net toy sales were $221.6 million, $150.8 million and $212.4
million in 1996, 1997 and 1998, respectively, while our toy operating income
(loss) was $27.2 million, $(49.3) million and $(18.7) million, respectively, for
such periods. MEG's revenues (including the Fleer/SkyBox sports and
entertainment trading card and Panini activity sticker and adhesive paper
businesses) were $745.5 million, $471.7 million and $273.5 million in 1996, 1997
and the nine months ended September 30, 1998, respectively, while its operating
loss was $(386.3) million, $(191.4) million and $(2.3) million, respectively,
for such periods.
We believe the sales and the profitability of each of our businesses
have been hurt by concerns about the effect of MEG's bankruptcy proceedings
among customers and others with whom we do business. While we believe that the
consummation of MEG's plan of reorganization has alleviated these concerns, our
sales and profitability might continue to be adversely affected.
We might not be able to successfully implement our business strategy.
Our ability to pay interest and principal on the Notes depends on the
success of our business strategy. Our strategy is to increase the media exposure
of our characters by licensing our characters for feature films, television
programming and other media. We believe that this kind of media exposure
increases consumer awareness and the popularity of our characters and generates
increased sales of our comic books and toys, as well as licensed products based
on our characters. We have granted, and expect to grant, licenses to produce
feature films and television programming based on our characters. However,
whether any feature films or television programming are actually made, released
or broadcast, and the timing of release or broadcast, if any, is outside of our
control. In the past, we have granted licenses to produce feature films based on
many of our key characters, including Spider-Man, X-Men, Captain America,
Fantastic Four, The Incredible Hulk, Iron Man, Daredevil and Silver Surfer. To
date, no feature films based on these characters have been released. If a
feature film or television programming is released or broadcast, we cannot
provide any assurances that such film or programming will be successful or that
such film or programming will result in increased demand for licensing and toys
based on our characters. If we overestimate the demand for Marvel-based toys, we
may have a large inventory of toys which we cannot sell or must mark down to
sell, and therefore our financial results could be materially impacted. While we
have over 3,500 characters, we have fewer than 20 which are very well known by a
broad group of consumers.
Our customer base for toys is concentrated.
Like other toy makers, we are dependent upon toy retailers and mass
merchandisers to distribute our products. The retail toy business is highly
concentrated. The five largest customers for our toy products accounted in the
aggregate for approximately 66% of our total toy sales in 1998. An adverse
change in, or termination of, our relationship with one or more of our major
customers could have a material adverse effect on us. In recent years, the
retail chain store industry, and the toy retail industry in particular, have
undergone significant consolidation. To the extent that this consolidation
continues, our distribution base could shrink,
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thereby concentrating an even greater percentage of our sales in a smaller
number of retailers and increasing the remaining toy retailers' ability to
negotiate more favorable terms and prices from us.
Toy retailers' inventory management systems could cause us to produce the wrong
amount of toy products.
Each of our five top toy customers uses, to some extent, inventory
management systems which track sales of particular products and rely on reorders
being rapidly filled by suppliers like us, rather than on large inventories
being maintained by the retailers themselves. These systems increase pressure on
us to fill orders promptly. The systems also shift a portion of retailers'
inventory risk onto us. Our production of excess products to meet anticipated
retailer demand could result in markdowns and increased inventory carrying costs
for us on even our most popular items. For instance, we believe that our
operations were negatively impacted in the fourth quarter of 1998 by the
decision of Toys 'R' Us, one of our major customers, to significantly reduce its
toy inventory levels. If we fail to anticipate a high demand for our products,
however, we face the risk that we may be unable to provide adequate supplies of
popular toys to retailers in a timely fashion, particularly during the Christmas
season, and may consequently lose sales.
We are vulnerable to changing consumer preferences.
Our new and existing toy products are subject to changing consumer
preferences. Most of our toy products can be successfully marketed for only a
limited period. In particular, toys based on feature films are in general
successfully marketed for only a year or two following the film's release.
Existing product lines might not retain their current popularity or new products
developed by us might not meet with the same success as our current products. We
might not accurately anticipate future trends or be able to successfully
develop, produce and market products to take advantage of market opportunities
presented by those trends. Part of our strategy is to make toys based on the
anticipated success of feature film releases and TV show broadcasts. If these
releases and broadcasts are not successful, we may not be able to sell these
toys profitably, if at all. In addition, we derive a substantial portion of our
revenues from a limited number of popular toys. In particular, we expect
products based on our World Championship Wrestling license to generate a
significant portion of our operating income during the next several years. If
these products are not successful, it could have a material adverse effect on
us.
We depend on toy manufacturers in China.
A large number of our toy products are manufactured in China, which
subjects us to risks of currency exchange fluctuations, transportation delays
and interruptions, and political and economic disruptions. Our ability to obtain
products from our Chinese manufacturers 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 us. The imposition of further trade sanctions
on China could result in significant supply disruptions or higher merchandise
costs to us. We might not be able to find alternate sources of manufacturing
outside China on acceptable terms even if we want or need to. Our inability to
find those alternate sources could have a material adverse effect on us.
We purchase goods from manufacturers in China mostly in Hong Kong
dollars and, accordingly, fluctuations in Hong Kong monetary rates may have an
impact on our cost of goods. In recent years, the value of the Hong Kong dollar
has been tied to the value of the United States dollar, eliminating fluctuations
between the two currencies. The Hong Kong dollar, however, might not continue to
be tied to the United States dollar. Furthermore, appreciation of Chinese
currency values relative to the Hong Kong dollar could increase our cost of
products manufactured in China and harm our business.
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Our toy business is seasonal.
Unlike many industries, the toy industry tends to be seasonal. Our
annual operating performance depends, in large part, on our sales of toys during
the relatively brief Christmas selling season. During 1996, 1997 and 1998, 64%,
67% and 60%, respectively, of our domestic net toy sales were realized during
the second half of the year. We expect that our toy business will continue to
experience a significant seasonal pattern for the foreseeable future. This
seasonal pattern requires significant use of working capital mainly to build
inventory during the year, prior to the Christmas selling season, and requires
accurate forecasting of demand for our products during the Christmas selling
season.
We must often make advance payments and guarantee royalties under licenses that
we acquire.
When we obtain licenses from others to manufacture products based on
their characters, we are often required to pay significant non-refundable
advances or to guarantee significant minimum royalty payments without knowing
whether the characters will be popular. If a character does not turn out to be
popular, the non-refundable advances and guaranteed minimum royalties might
cause us to lose a significant amount of money on the license.
We depend on a single direct market comic book distributor.
We distribute our comic book publications to the direct market through
the only major comic book distributor. The direct market accounted for
approximately 81% of Marvel Publishing's net publishing revenues in 1998. As a
result, a termination of our agreement with that distributor could significantly
disrupt our publishing operations. Our agreement with the distributor is for a
term of three-and-a-half years and automatically renews for succeeding one-year
periods unless terminated by either party. Either party also has the right to
terminate upon the happening of certain events. We believe that the termination
of the current distribution agreement would not have a long-term material
adverse effect on us.
We depend on our key personnel.
We depend to a substantial extent upon the expertise and services of
our senior management personnel and upon the expertise and services of Avi Arad,
who is our Chief Creative Officer, the President and Chief Executive Officer of
our film and television production operations, and one of our directors.
Virtually all of our toy products are the result of inventions by Mr. Arad or
are products in which Mr. Arad played a significant development role. The loss
of Mr. Arad's services could have a material adverse effect on us. In addition,
the loss of the services of any of our other senior management personnel also
could have a material adverse effect on us. The Company does not currently
maintain key-man life insurance on any of its personnel.
We have not yet achieved Year 2000 compliance.
Through March 31, 1999, we incurred Year 2000 ("Y2K") conversion costs
of approximately $1.5 million, primarily for our Toy Biz division, and we expect
to incur an additional $1.0 million in 1999. We are utilizing both internal and
external resources to upgrade or replace our software for Y2K compliance. We
anticipate completing the Y2K project for all our divisions by October 31, 1999.
During MEG's bankruptcy, the Marvel Licensing and Marvel Publishing
divisions had received only nominal Y2K conversion attention. We have placed all
our divisions on an accelerated program and have enlisted full time external
project management resources to supplement our efforts.
A weekly steering committee now monitors the Y2K program against its
primary goal of critical system remediation across three key areas: 1)
enterprise software for basic accounting and order execution; 2) legacy
824915.10
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and infrastructure remediation (i.e. remaining systems, PCs, telephones); and 3)
third party (customers, vendors) status and contingency planning. A quality
assurance program will be initiated in the third quarter.
The cost of the project and the date on which we will complete the Y2K
modifications are only estimates. We are currently not aware of any material
issues of Y2K non-compliance with our customers and suppliers. The worst-case
scenarios would be manual performance of all accounting functions and the loss
of relationships with major customers because of the inability of our computers
to interface with theirs. We have not yet developed a contingency plan to assess
the likelihood of, and to address, the worst-case scenarios. If the Y2K project
is not completed on a timely basis, or if our customers or suppliers fail to
address all the Y2K issues, it could have a material adverse impact on our
operations. We currently believe that the Y2K issue will not pose significant
operational problems for our computer systems.
There is no existing public market for the Notes.
Although holders of Notes who are not "affiliates" of the Company
within the meaning of the Securities Act may resell or otherwise transfer their
Notes without compliance with the registration requirements of the Securities
Act, there is no existing market for the Notes, and there can be no assurance as
to the liquidity of any markets that may develop for the Notes, the ability of
holders of Notes to sell their Notes or the prices at which holders would be
able to sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 16.2x 71.8x 73.1x -- -- 1.2x
=================================================================================
</TABLE>
For the purposes of the ratio of earnings to fixed charges, earnings
were calculated by adding pretax income, interest expense and the portion of
rents representative of an interest factor. Fixed charges consist of interest
expense and the portion of rents representative of an interest factor. For the
years ended December 31, 1997 and 1998, the Company's earnings were insufficient
to cover its fixed charges by approximately $49.7 million and $28.2 million,
respectively. The ratio of earnings to fixed charges for the year ended December
31, 1998 is not comparable with prior periods due to the Company's acquisition
of MEG on October 1, 1998.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
notes offered by this prospectus.
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DESCRIPTION OF THE NOTES
The Notes have been issued under an Indenture, dated as of February 25,
1999 (the "Indenture"), among the Company, as issuer, the Company's domestic
subsidiaries (the "Subsidiary Guarantors") and IBJ Whitehall Bank & Trust
Company (the "Trustee"). A copy of the Indenture is available upon request from
the Company. The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part thereof by the Trust
Indenture Act of 1939, as amended. Whenever particular defined terms of the
Indenture not otherwise defined herein are referred to, such defined terms are
incorporated herein by reference. For definitions of certain capitalized terms
used in the following summary, see "--Certain Definitions." As used in this
"Description of the Notes" section, the "Company" means Marvel Enterprises, Inc.
and its successors under the Indenture, but not any of its subsidiaries.
General
The Notes will be unsecured unsubordinated obligations of the
Company, initially limited to $250.0 million aggregate principal amount, and
will mature on June 15, 2009. Each Note will initially bear interest at 12% per
annum from the Closing Date or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semiannually (to Holders
of record at the close of business on June 1 or December 1 immediately preceding
the Interest Payment Date) on June 15 and December 15 of each year, commencing
June 15, 1999.
Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, the City of New York (which
initially will be the corporate trust office of the Trustee at One State Street,
New York, New York 10004; provided that, at the option of the Company, payment
of interest may be made by check mailed to the Holders at their addresses as
they appear in the Security Register.
The Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. See "--Book-Entry; Delivery and Form." No service charge will
be made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and
applicable law, the Company may issue additional Notes under the Indenture. The
Notes offered hereby and any additional Notes subsequently issued would be
treated as a single class for all purposes under the Indenture.
Optional Redemption
The Notes will be redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after June 15, 2004 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing June
15 of the years set forth below:
Year Redemption
---------- Price
------------
2004.......................................................... 106.000%
2005.......................................................... 104.000
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2006............................................................. 102.000
2007 and thereafter.............................................. 100.000
In addition, at any time prior to June 15, 2002, the Company may
redeem up to 35% of the principal amount of the Notes with the Net Cash Proceeds
of one or more sales of Capital Stock of the Company (other than Disqualified
Stock), at any time or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 112%, plus accrued and unpaid
interest to the Redemption Date (subject to the rights of Holders of record on
the relevant Regular Record Date that is prior to the Redemption Date to receive
interest due on an Interest Payment Date); provided that at least 65% of the
aggregate principal amount of Notes originally issued remains outstanding after
each such redemption and notice of any such redemption is mailed within 60 days
after such sale of Capital Stock.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
Guarantees
Payment of the principal of, premium, if any, and interest on the
Notes will be guaranteed, jointly and severally, on an unsecured senior basis by
the Subsidiary Guarantors. Initially, all Restricted Subsidiaries other than Toy
Biz International Ltd. and Compania de Juguetes Mexicanos will be Subsidiary
Guarantors. Each future Restricted Subsidiary which is not a Foreign Subsidiary
will be required to enter into a supplemental indenture pursuant to which such
Restricted Subsidiary will guarantee the obligations of the Company under the
Notes. In addition, if any Restricted Subsidiary becomes a guarantor or obligor
in respect of any other Indebtedness of the Company or any Restricted
Subsidiary, the Company will cause such Restricted Subsidiary to Guarantee the
Company's obligations under the Notes. See "--Covenants--Limitation on Issuances
of Guarantees by Restricted Subsidiaries."
The obligations of each Subsidiary Guarantor under its Note Guarantee
will be limited so as not to constitute a fraudulent conveyance under applicable
Federal or state laws. Each Subsidiary Guarantor that makes a payment or
distribution under its Note Guarantee will be entitled to a contribution from
any other Subsidiary Guarantor in a pro rata amount based on the net assets of
each Subsidiary Guarantor determined in accordance with GAAP. See "Risk
Factors--Federal and state statutes allow courts, under specific circumstances,
to void guarantees and require noteholders to return payments received from
guarantors."
The Note Guarantee issued by any Subsidiary Guarantor or Restricted
Subsidiary will be automatically and unconditionally released and discharged
upon (i) any sale, exchange or transfer to any Person not an Affiliate of the
Company of all of the Company's Capital Stock in, or all or substantially all
the assets of, such Subsidiary Guarantor or Restricted Subsidiary or (ii) the
designation of such Subsidiary Guarantor or Restricted Subsidiary as an
Unrestricted Subsidiary, in each case in compliance with the terms of the
Indenture.
Sinking Fund
There will be no sinking fund payments for the Notes.
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Ranking
The Indebtedness evidenced by the Notes will rank pari passu in right
of payment with all future unsubordinated indebtedness of the Company and senior
in right of payment to all existing and future subordinated indebtedness of the
Company. The Notes will be effectively subordinated to all secured indebtedness
of the Company.
Each Note Guarantee will rank pari passu in right of payment with all
other existing and future unsubordinated obligations of such Subsidiary
Guarantor and senior in right of payment to all future obligations of such
Subsidiary Guarantor expressly subordinated in right of payment to the Note
Guarantee of such Subsidiary Guarantor. Each Note Guarantee, however, will be
effectively subordinated to secured indebtedness of the respective Subsidiary
Guarantor with respect to the assets of such Subsidiary Guarantor securing such
obligations.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at
the time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by a Restricted Subsidiary; provided that Indebtedness
of such Person which is redeemed, defeased, retired or otherwise repaid at the
time of or immediately upon consummation of the transactions by which such
Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be
Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
items shall be excluded in computing Adjusted Consolidated Net Income (without
duplication):
(i) the net income of any Person that is not a Restricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Company or any of its Restricted
Subsidiaries by such Person during such period;
(ii) the net income (or loss) of any Person accrued prior to the
date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are acquired
by the Company or any of its Restricted Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the extent that
the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary;
(iv) any gains or losses (on an after-tax basis) attributable to
sales of assets;
(v) solely for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of
the "Limitation on Restricted Payments" covenant described below, any
amount paid or accrued as dividends on Preferred Stock of the Company
owned by Persons other than the Company and any of its Restricted
Subsidiaries; and
(vi) all extraordinary gains and extraordinary losses.
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"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary or shall be merged into or consolidated
with the Company or any of its Restricted Subsidiaries; provided that such
Person's primary business is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
investment or (ii) an acquisition by the Company or any of its Restricted
Subsidiaries of the property and assets of any Person other than the Company or
any of its Restricted Subsidiaries that constitute substantially all of a
division or line of business of such Person; provided that the property and
assets acquired are related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary) of (i) all or substantially all of the Capital
Stock of any Restricted Subsidiary or (ii) all or substantially all of the
assets that constitute a division or line of business of the Company or any of
its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transaction) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, (c) sales or other dispositions of assets for consideration at least
equal to the fair market value of the assets sold or disposed of, to the extent
that the consideration received would satisfy clause (B) of the "Limitation on
Asset Sales" covenant, (d) worn-out or obsolete equipment or assets that, in the
Company's reasonable judgment, are either no longer used or useful in the
business of the Company and the Restricted Subsidiaries or (e) any transfers
that, but for this clause (e), would be Asset Sales, if after giving effect to
such transfers, the aggregate fair market value of the properties or assets
transferred in such transaction or any such series of related transactions does
not exceed $500,000.
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"Attributable Indebtedness" when used with respect to any
Sale-Leaseback Transaction, means, as at the time of determination, the present
value (discounted at a rate equivalent to the Company's then-current weighted
average cost of funds for borrowed money as at the time of determination,
compounded on a semi-annual basis) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in any such
Sale-Leaseback Transaction.
"Average Life" means, at any date of determination with respect to
any debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Avoidance Litigation Trust" has the meaning set forth in the Plan.
"Beneficial Owner" (including, with correlative meaning,
"Beneficially Owned") has the meaning set forth in Rule 13d-3 under the Exchange
Act.
"Beneficially Owned Directly" means Beneficially Owned without taking
into account any agreement or other arrangement or understanding (including the
Stockholders Agreement).
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether outstanding on
the Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of
the rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other
than an Excluded Stockholder or Excluded Group, becomes the Beneficial Owner of
more than 35% of the total voting power of the Voting Stock of the Company on a
fully diluted basis and such ownership represents a greater percentage of the
total voting power of the Voting Stock of the Company, on a fully diluted basis,
than is held by the Excluded Stockholders on such date; provided that the
Persons party to the Stockholders Agreement on the Closing Date and their
Affiliates shall not constitute a "group" for purposes of this clause (i) solely
as a result of being a party to the Stockholders Agreement so long as no Person
party to the Stockholders Agreement Beneficially Owns Directly a greater
percentage of the voting power of the Voting Stock of the Company than is
Beneficially Owned Directly by the Excluded Stockholders or (ii) individuals who
on the Closing Date constitute the Board of Directors (together with any new
directors whose election to the Board of Directors or whose nomination by the
Board of Directors for election by the Company's stockholders was approved (a)
by a vote of at least a majority of the members of the Board of Directors then
in office who either were members of the Board of Directors on the Closing Date
or whose election or nomination for election was previously so approved, (b)
pursuant to the terms of the Stockholders Agreement so long as no Person party
to the Stockholders Agreement Beneficially Owns Directly a greater percentage of
the voting power of the Voting Stock of the Company than is Beneficially Owned
Directly by the Excluded Stockholders, or (c) by an Excluded Stockholder) cease
for any reason to constitute a majority of the members of the Board of Directors
then in office.
"Closing Date" means the date on which the Notes are originally
issued under the Indenture.
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"Consolidated EBITDA" means, for any period, Adjusted Consolidated
Net Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income: (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; Indebtedness
that is Guaranteed or secured by the Company or any of its Restricted
Subsidiaries (other than Indebtedness Guaranteed pursuant to the Panini
Guaranty, except to the extent the Company or any Restricted Subsidiary actually
pays interest on such Indebtedness); and all interest payable with respect to
discontinued operations) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of the Company and its Restricted Subsidiaries
(which shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of
any Person that by its terms or otherwise is (i) required to be redeemed prior
to the Stated Maturity of the Notes, (ii) redeemable at the option of the holder
of such class or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable for Capital
Stock referred to in clause (i) or (ii) above or Indebtedness having a
824915.10
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scheduled maturity prior to the Stated Maturity of the Notes; provided that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of control"
provisions applicable to such Capital Stock are no more favorable to the holders
of such Capital Stock than the provisions contained in "Limitation on Asset
Sales" and "Repurchase of Notes upon a Change of Control" covenants described
below and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to the
Company's repurchase of such Notes as are required to be repurchased pursuant to
the "Limitation on Asset Sales" and "Repurchase of Notes upon a Change of
Control" covenants described below. The Company's outstanding 8% Preferred Stock
would not constitute Disqualified Stock under the Indenture.
"Excess Administration Expense Claims Note" means a promissory note
to be issued under the Plan by the Company to Zib Inc. or one of its Affiliates,
the proceeds of which will be used by the Company to pay administration expense
claims related to the bankruptcy of Marvel Entertainment Group, Inc.; provided
that the aggregate amount of such note does not exceed $10 million.
"Excluded Group" means a "group" (within the meaning of Section 13(d)
or 14(d)(2) of the Exchange Act) that includes one or more of the Excluded
Stockholders; provided that a majority of the voting power of the Voting Stock
of the Company Beneficially Owned by such group is Beneficially Owned Directly
by such Excluded Stockholder(s).
"Excluded Stockholder" means (i) Isaac Perlmutter or Avi Arad or any
of their respective Affiliates, (ii) any spouse or any one or more lineal
descendants of the Persons included in the foregoing clause (i) and their
respective spouses and each of their respective Affiliates and (iii) any trust
established solely for the benefit of, and any charitable trust or foundation
established by, any one or more of the Persons included in the foregoing clauses
(i) and (ii); provided that each such Person included in the foregoing clauses
(ii) and (iii) shall only be deemed to be an Excluded Stockholder to the extent
such Person's Capital Stock of the Company was received directly or indirectly
from Isaac Perlmutter or Avi Arad, respectively.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors, whose determination shall
be conclusive if evidenced by a Board Resolution.
"Foreign Subsidiary" means any Subsidiary of the Company that is an
entity which is a controlled foreign corporation under Section 957 of the
Internal Revenue Code.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Closing Date, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession. All ratios and computations contained or referred
to in the Indenture shall be computed in conformity with GAAP applied on a
consistent basis, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
Indenture shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the Notes and (ii) except
as otherwise provided, the amortization of any amounts required or permitted by
Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any other Person
and, without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or
824915.10
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supply funds for the purchase or payment of) such Indebtedness of such other
Person (whether arising by virtue of partnership arrangements, or by agreements
to keep-well, to purchase assets, goods, securities or services (unless such
purchase arrangements are on arm's-length terms and are entered into in the
ordinary course of business), to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided that the term "Guarantee" shall not include endorsements for collection
or deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an "Incurrence" of Acquired Indebtedness; provided that
neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(i) all indebtedness of such Person for borrowed money;
(ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of credit
or other similar instruments (including reimbursement obligations with
respect thereto, but excluding obligations with respect to letters of
credit (including trade letters of credit) securing obligations (other
than obligations described in (i) or (ii) above or (v), (vi) or (vii)
below) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement);
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or
taking delivery and title thereto or the completion of such services,
except Trade Payables;
(v) all Capitalized Lease Obligations and other Attributable
Indebtedness;
(vi) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness;
(vii) all Indebtedness of other Persons Guaranteed by such Person to
the extent such Indebtedness is Guaranteed by such Person;
(viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements; and
(ix) all Disqualified Stock of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation; provided (A)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
824915.10
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time as determined in conformity with GAAP, (B) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund the
payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest, (C) that the amount of Indebtedness at any time of any Disqualified
Stock shall be the maximum fixed redemption or repurchase or repurchase price of
such Disqualified Stock where the "maximum fixed redemption or repurchase price"
of any Disqualified Stock which does not have a fixed redemption or repurchase
price shall be calculated in accordance with the terms of such Disqualified
Stock as if such Disqualified Stock were purchased or redeemed at such time, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution and (D) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Company and its Affiliates.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio
of (i) the aggregate amount of Consolidated EBITDA for the then most recent four
fiscal quarters prior to such Transaction Date for which reports have been filed
with the Commission or provided to the Trustee (the "Four Quarter Period") to
(ii) the aggregate Consolidated Interest Expense during such Four Quarter
Period. In making the foregoing calculation, (A) pro forma effect shall be given
to any Indebtedness Incurred or repaid during the period (the "Reference
Period") commencing on the first day of the Four Quarter Period and ending on
the Transaction Date (other than Indebtedness Incurred or repaid under a
revolving credit or similar arrangement to the extent of the commitment
thereunder (or under any predecessor revolving credit or similar arrangement) in
effect on the last day of such Four Quarter Period unless any portion of such
Indebtedness is projected, in the reasonable judgment of the senior management
of the Company, to remain outstanding for a period in excess of 12 months from
the date of the Incurrence thereof), in each case as if such Indebtedness had
been Incurred or repaid on the first day of such Reference Period; (B)
Consolidated Interest Expense attributable to interest on any Indebtedness
(whether existing or being Incurred) computed on a pro forma basis and bearing a
floating interest rate shall be computed as if the rate in effect on the
Transaction Date (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months or, if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire period; (C) pro forma
effect shall be given to Asset Dispositions and Asset Acquisitions (including
giving pro forma effect to the application of proceeds of any Asset Disposition)
that occur during such Reference Period as if they had occurred and such
proceeds had been applied on the first day of such Reference Period; and (D) pro
forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed for which financial information is available.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement, option or future contract or other
similar agreement or arrangement.
824915.10
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"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers or suppliers in the
ordinary course of business that are, in conformity with GAAP, recorded as an
account or licensing receivable, prepaid expenses or deposits on the balance
sheet of the Company or its Restricted Subsidiaries) or capital contribution to
(by means of any transfer of cash or other property to others or any payment for
property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the retention of
the Capital Stock (or any other Investment) by the Company or any of its
Restricted Subsidiaries, of (or in) any Person that has ceased to be a
Subsidiary, including without limitation, by reason of any transaction permitted
by clause (iii) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant. For purposes of the definition of
"Unrestricted Subsidiary" and the "Limitation on Restricted Payments" covenant
described below, the amount of or a reduction in an Investment shall be equal to
the fair market value thereof at the time such Investment is made or reduced.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof or any
agreement to give any security interest).
"MAFCO Litigation Trust" has the meaning set forth in the Plan.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Note Guarantee" means (i) any guarantee of the obligations of the
Company under the Indenture and the Notes by any Subsidiary Guarantor and (ii)
any Subsidiary Guarantee.
"Offer to Purchase" means an offer to purchase Notes by the Company
from the Holders commenced by mailing a notice to the Trustee and each Holder
stating:
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(i) the covenant pursuant to which the offer is being made and that
all Notes validly tendered will be accepted for payment on a pro rata
basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Payment Date");
(iii) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Note accepted for payment pursuant to the Offer to
Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the
Offer to Purchase will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the Note completed, to the Paying Agent at the address specified
in the notice prior to the close of business on the Business Day
immediately preceding the Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the
principal amount of Notes delivered for purchase and a statement that such
Holder is withdrawing his election to have such Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new
Note issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Payment Date, the Company shall (i) accept for payment on a
pro rata basis Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the Paying Agent
for an Offer to Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that the Company
is required to repurchase Notes pursuant to an Offer to Purchase.
"Panini Guaranty" means the Guarantee Agreement, dated as of
September 28, 1998, among the Company, certain subsidiaries of the Company and
The Chase Manhattan Bank.
"Panini Indemnity" has the meaning set forth in the Plan.
"Panini Notes" means debt securities to be issued by the Company
pursuant to and in accordance with the Panini Guaranty; provided that the
aggregate amount of such debt securities does not exceed $27.0 million.
"Permitted Investment" means:
(i) an Investment in the Company or a Subsidiary Guarantor or a
Person which will, upon the making of such Investment, become a Subsidiary
Guarantor or be merged or consolidated with or into or
824915.10
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transfer or convey all or substantially all its assets to, the Company or
a Subsidiary Guarantor; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and
its Restricted Subsidiaries on the date of such Investment;
(ii) Temporary Cash Investments;
(iii) payroll, travel and similar advances to cover matters that are
expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP;
(iv) stock, obligations or securities received in satisfaction of
judgments;
(v) an Investment in an Unrestricted Subsidiary consisting solely of
an Investment in another Unrestricted Subsidiary;
(vi) Interest Rate Agreements and Currency Agreements designed
solely to protect the Company or its Restricted Subsidiaries against
fluctuations in interest rates or foreign currency exchange rates;
(vii) Investments in the MAFCO Litigation Trust and the Avoidance
Litigation Trust in accordance with their respective terms; provided that
the aggregate amount of such Investments does not exceed $2.1 million plus
the net reduction in Investments made pursuant to this clause (vii)
resulting from distributions on or repayments of such Investments or from
the Net Cash Proceeds from the sale or other disposition of any such
Investment (except in each case to the extent of any gain on such sale or
disposition that would be included in the calculation of Adjusted
Consolidated Net Income for purposes of clause (C)(1) of the "Limitation
on Restricted Payments" covenant) or from such Person becoming a
Restricted Subsidiary (valued in each case as provided in the definition
of "Investments"); provided that the net reduction in any Investment shall
not exceed the amount of such Investment;
(viii) Investments in any Person (other than an Unrestricted
Subsidiary) received in return for the licensing or sublicensing of use of
any intellectual property to such Person by the Company or any Restricted
Subsidiary in the ordinary course of business; provided that any such
Investment in an Affiliate of the Company must satisfy the requirements of
clause (i) of the second paragraph of the "Limitation on Transactions with
Shareholders and Affiliates" covenant; and
(ix) an Investment in a Restricted Subsidiary which is not a
Subsidiary Guarantor, provided that the aggregate amount of such
Investments does not exceed $5 million plus the net reduction in
Investments made pursuant to this clause (ix) resulting from distributions
on or repayments of such Investments or from the Net Cash Proceeds from
the sale or other disposition of any such Investment (except in each case
to the extent of any gain on such sale or disposition that would be
included in the calculation of Adjusted Consolidated Net Income for
purposes of clause (C)(1) of the "Limitation on Restricted Payments"
covenant) or from such Person becoming a Restricted Subsidiary (valued in
each case as provided in the definition of "Investments"); provided that
the net reduction in any Investment shall not exceed the amount of such
Investment.
"Permitted Liens" means:
(i) Liens for taxes, assessments, governmental charges or claims
that are being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made;
(ii) statutory and common law Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by
appropriate legal proceedings
824915.10
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promptly instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in conformity
with GAAP shall have been made;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance
and return-of-money bonds and other obligations of a similar nature
incurred in the ordinary course of business (exclusive of obligations for
the payment of borrowed money);
(v) easements, rights-of-way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries;
(vi) Liens (including extensions and renewals thereof) upon real or
personal property acquired after the Closing Date; provided that (a) such
Lien is created solely for the purpose of securing Indebtedness Incurred,
in accordance with the "Limitation on Indebtedness" covenant described
below, to finance the cost (including the cost of improvement or
construction) of the item of property or assets subject thereto and such
Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the
commencement of full operation of such property (b) the principal amount
of the Indebtedness secured by such Lien does not exceed 100% of such cost
and (c) any such Lien shall not extend to or cover any property or assets
other than such item of property or assets and any improvements on such
item;
(vii) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Company or
its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to
any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or
becomes a part of, any Restricted Subsidiary; provided that such Liens do
not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets acquired;
(xii) Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against the Company or any Restricted Subsidiary that does not give rise
to an Event of Default;
(xiv) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating to
such letters of credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
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(xvi) Liens encumbering customary initial deposits and margin
deposits, and other Liens that are within the general parameters customary
in the industry and incurred in the ordinary course of business, in each
case, securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to protect
the Company or any of its Restricted Subsidiaries from fluctuations in
interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date;
(xviii) Liens on shares of Capital Stock of any Unrestricted
Subsidiary to secure Indebtedness of such Unrestricted Subsidiary;
(xix) licenses or similar rights granted by the Company or any
Restricted Subsidiary in the ordinary course of business;
(xx) any interest or title of a licensor in the property subject to
a license;
(xxi) Liens on or sales of receivables; and
(xxii) Liens securing Indebtedness or other obligations in an
aggregate amount not to exceed $5.0 million.
"Plan" means the Fourth Amended Joint Plan of Reorganization
proposed by Toy Biz, Inc. and certain secured creditors of Marvel Entertainment
Group, Inc. in connection with the bankruptcy of Marvel Entertainment Group,
Inc. which was confirmed by the United States District Court for the District of
Delaware on July 31, 1998, as subsequently amended.
"Registration Rights Agreements" means (i) the Registration Rights
Agreement, dated as of October 1, 1998, among the Company and certain holders of
its capital stock; (ii) the Registration Rights Agreement, dated as of December
8, 1998, among the Company and certain holders of its capital stock; and (iii)
the registration rights provided for in Section 6.18 of the Plan.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw-Hill Companies, and its successors.
"Sale-Leaseback Transaction" means any transaction whereby the
Company or a Restricted Subsidiary sells or transfers any of its assets or
properties whether now owner of hereafter acquired and then or thereafter leases
such assets or properties or any part thereof or any other assets or properties
which the Company or such Restricted Subsidiary, as the case may be, intends to
use for substantially the same purpose or purposes as the assets or properties
sold or transferred.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
824915.10
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"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of October 1, 1998, among the Company and certain holders of its capital stock,
as in effect on the closing date.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following:
(i) direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by the United
States of America or any agency thereof;
(ii) time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States of America, and which bank or trust
company has capital, surplus and undivided profits aggregating in excess
of $100.0 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by a registered broker dealer or mutual fund
distributor;
(iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above
entered into with a bank or trust company meeting the qualifications
described in clause (ii) above;
(iv) commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a corporation (other than an Affiliate of
the Company) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P; and
(v) securities with maturities of six months or less from the date
of acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, and rated at least
"A" by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts
payable or any other indebtedness or monetary obligation to trade creditors
created, assumed or Guaranteed by such Person or any of its Subsidiaries arising
in the ordinary course of business in connection with the acquisition of goods
or services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) Panini S.p.A., inactive
Subsidiaries of the Company and any other Subsidiary of the Company that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed
824915.10
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Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (A) any Guarantee by
the Company or any Restricted Subsidiary of any Indebtedness of the Subsidiary
being so designated shall be deemed an "Incurrence" of such Indebtedness and an
"Investment" by the Company or such Restricted Subsidiary (or both, if
applicable) at the time of such designation; (B) either (I) the Subsidiary to be
so designated has total assets of $1,000 or less or (II) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
"Limitation on Restricted Payments" covenant described below and (C) if
applicable, the Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under the "Limitation on
Indebtedness" and "Limitation on Restricted Payments" covenants described below.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that (i) no Default or Event of Default shall
have occurred and be continuing at the time of or after giving effect to such
designation and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred at such time,
have been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of the Indenture. Any such designation by the Board of
Directors shall be evidenced to the Trustee by promptly filing with the Trustee
a copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof at any time prior
to the Stated Maturity of the Notes, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
the ownership of all of the outstanding Capital Stock of such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) by such Person or one or more Wholly Owned
Subsidiaries of such Person.
Covenants
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted Subsidiaries
to, Incur any Indebtedness (other than the Notes and Indebtedness existing on
the Closing Date); provided that the Company or any Subsidiary Guarantor may
Incur Indebtedness if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be greater than 2.0:1.
Notwithstanding the foregoing, the Company and any Restricted
Subsidiary (except as specified below) may Incur each and all of the following:
824915.10
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(i) Indebtedness of the Company or any Subsidiary Guarantor
outstanding at any time in an aggregate principal amount (together with
refinancings thereof) not to exceed the greater of (x) $70.0 million, less
any amount of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below, and (y) the sum of
80% of the book value of the accounts receivable due within one year and
50% of the inventory of the Company and the Restricted Subsidiaries
calculated on a consolidated basis in accordance with GAAP;
(ii) Indebtedness owed (A) to the Company evidenced by an
unsubordinated promissory note or (B) to any Restricted Subsidiary;
provided that any event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, then outstanding Indebtedness and
any refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes or any Note Guarantees
shall only be permitted under this clause (iii) if (A) in case the Notes
are refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes or any Note Guarantees, such new Indebtedness, by its terms
or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is outstanding, is expressly made pari passu with, or
subordinate in right of payment to, the remaining Notes or such Note
Guarantees, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes or any Note Guarantees, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the Notes or such
Note Guarantees at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes or such Note Guarantees and (C)
such new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such
new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no
event may Indebtedness of the Company or any Subsidiary Guarantor be
refinanced by means of any Indebtedness of any Restricted Subsidiary that
is not a Subsidiary Guarantor pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; provided that such agreements (a)
are designed solely to protect the Company or its Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest rates
and (b) do not increase the Indebtedness of the obligor outstanding at any
time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its Restricted
Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company
or any Restricted Subsidiary in connection with such disposition;
(v) Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase Notes tendered in an Offer to
Purchase made as a result of a Change of Control or (B) deposited to
defease the Notes as described below under "Defeasance";
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(vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company or any Subsidiary Guarantor by any Restricted Subsidiary provided
the Guarantee of such Indebtedness is permitted by and made in accordance
with the "Limitation on Issuance of Guarantees by Restricted Subsidiaries"
covenant described below;
(vii) Indebtedness under the Panini Notes and the Excess
Administration Expense Claims Note;
(viii) Indebtedness Incurred by the Company or any Subsidiary
Guarantor in an aggregate amount outstanding at any time (including
refinancings thereof) not to exceed $20.0 million to finance the cost of
an acquisition of (A) any Person (other than the Company and its
Restricted Subsidiaries) whereby such Person will be merged into or
consolidated with the Company or any of its Restricted Subsidiaries;
provided that such Person's primary business is related, ancillary or
complementary to the business of the Company and its Restricted
Subsidiaries or (B) the property or assets of any Person (other than the
Company and its Restricted Subsidiaries); provided that such property or
assets are related, ancillary or complementary to the business of the
Company and its Restricted Subsidiaries;
(ix) Indebtedness incurred by the Company or any Subsidiary
Guarantor to finance the cost of acquiring equipment, inventory or other
assets (both tangible and intangible) used or useful in the business of
the Company and its Restricted Subsidiaries in an aggregate amount
outstanding at any time (including refinancings thereof) not to exceed
$5.0 million; and
(x) Indebtedness of the Company or any Subsidiary Guarantor (in
addition to Indebtedness permitted under clauses (i) through (ix) above)
in an aggregate principal amount outstanding at any time (together with
refinancings thereof) not to exceed $15.0 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the
Company or a Restricted Subsidiary may Incur pursuant to this "Limitation
on Indebtedness" covenant shall not be deemed to be exceeded, with respect
to any outstanding Indebtedness due solely to the result of fluctuations
in the exchange rates of currencies.
(c) For purposes of determining any particular amount of
Indebtedness under this "Limitation on Indebtedness" covenant, (1)
Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included and (2) any Liens granted pursuant
to the equal and ratable provisions referred to in the "Limitation on
Liens" covenant described below shall not be treated as Indebtedness. For
purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of
more than one of the types of Indebtedness described in the above clauses,
the Company, in its sole discretion, shall classify, and from time to time
may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses (but may
allocate portions of such Indebtedness between or among such clauses).
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or make any
distribution on or with respect to its Capital Stock (other than (x) dividends
or distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants
824915.10
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<PAGE>
or other rights to acquire such shares of Capital Stock) held by any Person or
(B) a Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by any Affiliate of the Company
(other than a Wholly Owned Restricted Subsidiary) or any holder (or any
Affiliate of such holder) of 5% or more of the Capital Stock of the Company,
(iii) make any voluntary or optional principal payment, or voluntary or optional
redemption, repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in right of payment
to the Notes or (iv) make any Investment, other than a Permitted Investment and
Investments outstanding on the Closing Date, in any Person (such payments or any
other actions described in clauses (i) through (iv) above being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing,
(B) the Company could not Incur at least $1.00 of Indebtedness under
the first paragraph of the "Limitation on Indebtedness" covenant or
(C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a
Board Resolution) made after the Closing Date shall exceed the sum of
(1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100%
of the amount of such loss) (determined by excluding income resulting from
transfers of assets by the Company or a Restricted Subsidiary to an
Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the fiscal
quarter immediately following the Closing Date and ending on the last day
of the last fiscal quarter preceding the Transaction Date for which
reports have been filed with the Commission or provided to the Trustee
plus
(2) the aggregate Net Cash Proceeds received by the Company after
the Closing Date from the issuance and sale permitted by the Indenture of
its Capital Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, including an issuance or sale permitted by the
Indenture of Indebtedness of the Company for cash subsequent to the
Closing Date upon the conversion of such Indebtedness into Capital Stock
(other than Disqualified Stock) of the Company, or from the issuance to a
Person who is not a Subsidiary of the Company of any options, warrants or
other rights to acquire Capital Stock of the Company (in each case,
exclusive of any Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes) plus
(3) an amount equal to the net reduction in Investments (other than
reductions in Permitted Investments and Investments outstanding on the
Closing Date) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted
Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person
or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
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(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iii) of the second paragraph of part (a) of the "Limitation
on Indebtedness" covenant;
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Disqualified Stock) of the Company (or options, warrants
or other rights to acquire such Capital Stock);
(iv) the making of any principal payment or the repurchase,
redemption, retirement, defeasance or other acquisition for value of
Indebtedness of the Company which is subordinated in right of payment to
the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than
Disqualified Stock) of the Company (or options, warrants or other rights
to acquire such Capital Stock);
(v) payments or distributions, to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company;
(vi) Investments acquired in exchange for, or out of the proceeds of
a substantially concurrent offering of, Capital Stock (other than
Disqualified Stock) of the Company;
(vii) the declaration or payment of dividends on the Capital Stock
(other than Disqualified Stock) of the Company in an aggregate annual
amount not to exceed 6% of the Net Cash Proceeds received by the Company
after the Closing Date from the sale of such Capital Stock;
(viii) the purchase, redemption, acquisition, cancellation or other
retirement for value of shares of Capital Stock of the Company held by
officers, directors or employees or former officers, directors or
employees (or other transferees, estates or beneficiaries under their
estates), upon death, disability, retirement, severance or termination of
employment or service pursuant to any agreement under which such shares of
Capital Stock or related rights were issued; provided that the aggregate
consideration paid for such purchase, redemption, acquisition,
cancellation or other retirement of such shares of Capital Stock after the
Closing Date does not exceed (x) $1.0 million in any calendar year (with
unused amounts in any calendar year being carried over to succeeding
calendar years) or (y) $3.5 million in the aggregate after the Closing
Date;
(ix) payments of cash in lieu of the issuance of fractional shares
upon the exercise of warrants or upon the conversion or exchange of, or
issuance of Capital Stock in lieu of cash dividends on, any Capital Stock
of the Company, which in the aggregate do not exceed $2.0 million;
(x) any Investment in any Person the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment; provided that the
aggregate amount of Investments made pursuant to this clause (x) does not
exceed the sum of $10.0 million, plus the net reduction in Investments
made pursuant to this clause (x) resulting from distributions on or
repayments of such Investments or from the Net Cash Proceeds from the sale
or other disposition of any such Investment (except in each case to the
extent of any gain on such sale or other disposition that would be
included in the calculation of Adjusted Consolidated Net Income for
purposes of clause (C)(1) above) or from such Person becoming a Restricted
Subsidiary (valued in each case as provided in the definition of
"Investments"); provided that the net reduction in any Investment shall
not exceed the amount of such Investment;
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(xi) loans or advances to Foreign Subsidiaries to pay invoices from
suppliers in an aggregate amount not to exceed $5.0 million outstanding at
any one time; or
(xii) other Restricted Payments in an aggregate amount not to exceed
$5.0 million plus the net reduction in Investments made pursuant to this
clause (xii) resulting from distributions on or repayments of such
Investments or from the Net Cash Proceeds from the sale or other
disposition of any such Investment (except in each case to the extent of
any gain on such sale or disposition that would be included in the
calculation of Adjusted Consolidated Net Income for purposes of clause
(C)(1) above) or from such Person becoming a Restricted Subsidiary (valued
in each case as provided in the definition of "Investments"), provided
that the net reduction in any Investment shall not exceed the amount of
such Investment;
provided that, except in the case of clauses (i) and (iii), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment acquired in exchange for Capital
Stock referred to in clause (vi) thereof), and the Net Cash Proceeds from any
issuance of Capital Stock referred to in clauses (iii) and (iv), shall be
included in calculating whether the conditions of clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant have been met
with respect to any subsequent Restricted Payments. In the event the proceeds of
an issuance of Capital Stock of the Company are used for the redemption,
repurchase or other acquisition of the Notes, or Indebtedness that is pari passu
with the Notes, then the Net Cash Proceeds of such issuance shall be included in
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant only to the extent such proceeds are not used for such redemption,
repurchase or other acquisition of Indebtedness. For purposes of determining
compliance with this "Limitation on Restricted Payments" covenant, in the event
that a transaction meets the criteria of more than one of the types of
Restricted Payments described in the clauses of the immediately preceding
paragraph or any clause of the definition of "Restricted Payment," the Company,
in its sole discretion, shall classify such transaction and only be required to
include the amount and type of such transaction on one of such clauses (but may
allocate such amount between or among such clauses).
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary
to, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions
permitted by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted Subsidiary, (iii) make
loans or advances to the Company or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; provided that
the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law;
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(iii) existing with respect to any Person or the property or assets
of such Person acquired by the Company or any Restricted Subsidiary,
existing at the time of such acquisition and not incurred in contemplation
thereof, which encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than such Person or
the property or assets of such Person so acquired;
(iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (A) that restrict in a customary manner
the subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company
or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any
Restricted Subsidiary in any manner material to the Company or any
Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or
(vi) with respect to a Subsidiary Guarantor, contained in the terms
of any Indebtedness or any agreement pursuant to which such Indebtedness
was issued if (A) the encumbrance or restriction is not materially more
disadvantageous to the Holders of the Notes than is customary in
comparable financings (as determined in good faith by the Company) and (B)
the Company determines that any such encumbrance or restriction will not
materially affect the Company's ability to make principal or interest
payments on the Notes.
Nothing contained in this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant shall prevent the
Company or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on Liens"
covenant or (2) restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure Indebtedness of
the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Company will not sell, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell, any shares of Capital
Stock of a Restricted Subsidiary (including options, warrants or other rights to
purchase shares of such Capital Stock) except:
(i) to the Company or a Wholly Owned Restricted Subsidiary;
(ii) issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted Subsidiaries,
to the extent required by applicable law;
(iii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after giving effect
to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance or sale; or
(iv) issuances or sales of Common Stock of a Restricted Subsidiary;
provided that the Company or such Restricted Subsidiary applies the Net
Cash Proceeds, if any, of such sale in accordance with clause (A) or (B)
of the "Limitation on Asset Sales" covenant described below.
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Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to Guarantee any Indebtedness of
the Company or any Subsidiary Guarantor which is pari passu with or subordinate
in right of payment to the Notes or Note Guarantees ("Guaranteed Indebtedness"),
unless (i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be applicable to
any Guarantee of any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary. If the
Guaranteed Indebtedness is (A) pari passu with the Notes or Note Guarantees,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes or
Note Guarantees, then the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent that the
Guaranteed Indebtedness is subordinated to the Notes or Note Guarantees.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be automatically
and unconditionally released and discharged upon (i) any sale, exchange or
transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each Restricted Subsidiary's Capital Stock in, or all or substantially all
the assets of, such Restricted Subsidiary (which sale, exchange or transfer is
not prohibited by the Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 10% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to:
(i) transactions (A) approved by a majority of the disinterested
members of the Board of Directors or (B) for which the Company or a
Restricted Subsidiary delivers to the Trustee a written opinion of an
Independent Financial Advisor stating that the transaction is fair to the
Company or such Restricted Subsidiary from a financial point of view;
(ii) any transaction solely between the Company and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries;
(iii) reasonable director, officer and employee compensation and
other benefits, and indemnification arrangements entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of
business and consistent with past practices of the Company or such
Restricted Subsidiary;
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(iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company
files a consolidated tax return or with which the Company is part of a
consolidated group for tax purposes;
(v) any issuance or sale of shares of Capital Stock (other than
Disqualified Stock) of the Company or options, warrants or other rights to
acquire such shares of Capital Stock;
(vi) any Restricted Payments not prohibited by the "Limitation on
Restricted Payments" covenant;
(vii) any transaction between the Company or any Restricted
Subsidiary and any qualified employee stock ownership program established
for the benefit of the Company's employees and approved by the Board of
Directors, or the establishment or maintenance of any such plan;
(viii) transactions pursuant to and in accordance with (1) the
agreement, dated as of January 1, 1998, between the Company and Tangible
Media, Inc.; provided that such transactions are on an arm's length basis
and in the ordinary course of business, (2) the Employment Agreement,
dated as of September 30, 1998, between the Company and Avi Arad, (3) the
Master Licensing Agreement, dated April 30, 1993, as amended, between the
Company and Avi Arad & Associates, (4) the Cost Sharing Agreement, dated
as of January 1, 1998, between the Company and Tangible Media, Inc., as in
effect on the Closing Date, (5) the Stockholders Agreement, (6) the
Registration Rights Agreements, (7) the Panini Indemnity and (8) the
Excess Administration Expense Claims Note;
(ix) the establishment of, and borrowings and repayments under,
working capital facilities provided by one or more stockholders of the
Company pursuant to commitments in effect on the Closing Date and any
amendment, termination or refinancing of such working capital facilities
approved by a majority of the disinterested members of the Board of
Directors;
(x) any transaction contemplated by the Plan between the Company
and the Avoidance Litigation Trust; and
(xi) the payment of fees to Morgan Stanley & Co. Incorporated or
its Affiliates for financial, advisory, consulting or investment banking
services that the Board of Directors deems advisable or appropriate
(including, without limitation, the payment of any underwriting discounts
or commissions or placement agency fees in connection with the issuance
and sale of securities).
Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on Transactions
with Shareholders and Affiliates" covenant and not covered by clauses (ii)
through (xi) of this paragraph, (a) the aggregate amount of which exceeds $1.0
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above and (b) the aggregate amount of which
exceeds $5.0 million in value, must be determined to be fair in the manner
provided for in clause (i)(B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary
to, create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to:
824915.10
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(i) Liens existing on the Closing Date;
(ii) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders;
(iii) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such
other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (iii)
of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets
of the Company or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced;
(v) Liens securing Indebtedness Incurred under clause (i) of the
second paragraph of the "Limitation on Indebtedness" covenant;
(vi) Liens on and pledges of the Capital Stock of an Unrestricted
Subsidiary securing indebtedness of such Unrestricted Subsidiary;
(vii) Liens securing letters of credit entered into in the ordinary
course of business and consistent with past business practice; or
(viii) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary
to, enter into any Sale-Leaseback Transaction.
The foregoing restriction does not apply to any Sale-Leaseback
Transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of the "Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary
to, consummate any Asset Sale, unless (i) the consideration received by the
Company or such Restricted Subsidiary is at least equal to the fair market value
of the assets sold or disposed of and (ii) at least 75% of the consideration
received consists of cash or Temporary Cash Investments or the assumption of
Indebtedness of the Company or any Restricted Subsidiary (other than
Indebtedness to the Company or any Restricted Subsidiary), provided that the
Company or such Restricted Subsidiary is irrevocably and unconditionally
released from all liability under such Indebtedness.
In the event and to the extent that the Net Cash Proceeds received by
the Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of the
date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its
824915.10
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Subsidiaries has been filed with the Commission or provided to the Trustee),
then the Company shall or shall cause the relevant Restricted Subsidiary to:
(i) within twelve months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or any
Subsidiary Guarantor or Indebtedness of any other Restricted Subsidiary,
in each case owing to a Person other than the Company or any of its
Restricted Subsidiaries or
(B) invest an equal amount, or the amount not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so invest
within 12 months after the date of such agreement), in property or assets
(other than current assets) of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type,
or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Restricted
Subsidiaries existing on the date of such investment and
(ii) apply (no later than the end of the 12-month period referred to
in clause (i)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i)) as provided in the following paragraph of this
"Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount
of Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to
this "Limitation on Asset Sales" covenant totals at least $5.0 million, the
Company must commence, not later than the fifteenth Business Day of such month,
and consummate an Offer to Purchase from the Holders (and if required by the
terms of any Indebtedness that is pari passu with the Notes ("Pari Passu
Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata
basis an aggregate principal amount of Notes (and Pari Passu Indebtedness) equal
to the Excess Proceeds on such date, at a purchase price equal to 100% of the
principal amount thereof, plus, in each case, accrued interest (if any) to the
Payment Date.
For purposes of the first paragraph of this "Limitation on Asset
Sales" covenant, securities received by the Company or any Restricted Subsidiary
in any Asset Sale that are promptly (but in any event within 60 days after such
Asset Sale) converted by the Company or such Restricted Subsidiary into cash,
shall be deemed to be cash.
Repurchase of Notes upon a Change of Control
The Company must commence, within 30 days of the occurrence of a
Change of Control, and consummate an Offer to Purchase for all Notes then
outstanding, at a purchase price equal to 101% of the principal amount thereof,
plus accrued interest (if any) to the Payment Date. The Company will not be
required to make an Offer to Purchase pursuant to this covenant if a third party
makes an Offer to Purchase in compliance with this covenant and repurchases all
Notes validly tendered and not withdrawn under such Offer to Purchase.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained,
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require the Company to repay all indebtedness then outstanding which by its
terms would prohibit such Note repurchase, either prior to or concurrently with
such Note repurchase.
Commission Reports and Reports to Holders
Whether or not the Company is then required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by Section
13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject
thereto. The Company shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information.
Events of Default
The following events will be defined as "Events of Default" in the
Indenture:
(a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period of 30
days;
(c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on
Asset Sales" or "Repurchase of Notes upon a Change of Control" covenant;
(d) the Company or any Subsidiary Guarantor defaults in the
performance of or breaches any other covenant or agreement of the Company
in the Indenture or under the Notes (other than a default specified in
clause (a), (b) or (c) above) and such default or breach continues for a
period of 30 consecutive days after written notice by the Trustee or the
Holders of 25% or more in aggregate principal amount of the Notes;
(e) there occurs with respect to any issue or issues of Indebtedness
of the Company, any Subsidiary Guarantor or any Significant Subsidiary
having an outstanding principal amount of $5.0 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness to
be due and payable prior to its Stated Maturity and such Indebtedness has
not been discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure to
make a principal payment at the final (but not any interim) fixed maturity
and such defaulted payment shall not have been made, waived or extended
within 30 days of such payment default;
(f) any final judgment or order (not covered by insurance) for the
payment of money in excess of $5.0 million in the aggregate for all such
final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be
rendered against the Company, any Subsidiary Guarantor or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any
period of 30 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such Persons to
exceed $5.0 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect;
(g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company, any Subsidiary Guarantor
or any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
(B) appointment of a
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receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company, any Subsidiary Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, any Subsidiary Guarantor or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of the
Company, any Subsidiary Guarantor or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days;
(h) the Company, any Subsidiary Guarantor or any Significant
Subsidiary (A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to
the entry of an order for relief in an involuntary case under any such
law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company, any Subsidiary Guarantor or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company, any Subsidiary Guarantor or any Significant
Subsidiary or (C) effects any general assignment for the benefit of
creditors; or
(i) except as permitted by the Indenture, any Subsidiary Guarantor
repudiates its obligations under any Note Guarantee.
If an Event of Default (other than an Event of Default specified in
clause (g) or (h) above that occurs with respect to the Company or a Subsidiary
Guarantor) occurs and is continuing under the Indenture, the Trustee or the
Holders of at least 25% in aggregate principal amount of the Notes, then
outstanding, by written notice to the Company (and to the Trustee if such notice
is given by the Holders), may, and the Trustee at the written request of such
Holders shall, declare the principal of, premium, if any, and accrued interest
on the Notes to be immediately due and payable. Upon a declaration of
acceleration, such principal, premium, if any, and accrued interest shall be
immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (e) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (e) shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant Indebtedness
within 60 days after the declaration of acceleration with respect thereto. If an
Event of Default specified in clause (g) or (h) above occurs with respect to the
Company or a Subsidiary Guarantor, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if
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any, or interest on, such Note or to bring suit for the enforcement of any such
payment, on or after the due date expressed in the Notes, which right shall not
be impaired or affected without the consent of the Holder.
The Indenture will require certain officers of the Company to
certify, on or before a date not more than 90 days after the end of each fiscal
year, that a review has been conducted of the activities of the Company and its
Restricted Subsidiaries and the Company's and its Restricted Subsidiaries'
performance under the Indenture and that the Company has fulfilled all
obligations thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the Trustee in writing of
any default or defaults in the performance of any covenants or agreements under
the Indenture.
Consolidation, Merger and Sale of Assets
Neither the Company nor any Subsidiary Guarantor will consolidate
with, merge with or into, or sell, convey, transfer, lease or otherwise dispose
of all or substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person or permit any Person to merge with or into the
Company or such Subsidiary Guarantor, as the case may be, unless:
(i) the Company or such Subsidiary Guarantor, as the case may be,
shall be the continuing Person, or the Person (if other than the Company
or such Subsidiary Guarantor) formed by such consolidation or into which
the Company or such Subsidiary Guarantor is merged or that acquired or
leased such property and assets of the Company or such Subsidiary
Guarantor shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, all of the obligations of (A) the Company on all of the Notes
and under the Indenture or (B) such Subsidiary Guarantor under the
Indenture, as the case may be;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) immediately after giving effect to any such transaction
involving the Company, on a pro forma basis, the Company or any Person
becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction;
(iv) in the case of a transaction involving the Company, immediately
after giving effect to such transaction on a pro forma basis the Company,
or any Person becoming the successor obligor of the Notes, as the case may
be, could Incur at least $1.00 of Indebtedness under the first paragraph
of the "Limitation on Indebtedness" covenant; provided that this clause
(iv) shall not apply to a consolidation, merger or sale of all (but not
less than all) of the assets of the Company if all Liens and Indebtedness
of the Company or any Person becoming the successor obligor on the Notes,
as the case may be, and its Restricted Subsidiaries outstanding
immediately after such transaction would have been permitted (and all such
Liens and Indebtedness, other than Liens and Indebtedness of the Company
and its Restricted Subsidiaries outstanding immediately prior to the
transaction, shall be deemed to have been Incurred) for all purposes of
the Indenture;
(v) the Company delivers to the Trustee an Officers' Certificate
(attaching the arithmetic computations to demonstrate compliance with
clauses (iii) and (iv)) and Opinion of Counsel, in each case stating that
such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with; and
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(vi) in the case of a transaction involving the Company, each
Subsidiary Guarantor and each Restricted Subsidiary which has provided a
Subsidiary Guarantee, unless such Subsidiary Guarantor or Restricted
Subsidiary is the Person with which the Company has entered into a
transaction under this "Consolidation, Merger and Sale of Assets" section,
shall have by amendment to its Note Guarantee confirmed that its Note
Guarantee shall apply to the obligations of the Company or the surviving
entity in accordance with the Notes and the Indenture.
provided, however, that clauses (iii) and (iv) above do not apply if, in the
good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company or any
Subsidiary Guarantor and any such transaction shall not have as one of its
purposes the evasion of the foregoing limitations and provided, further, that
clauses (i), (ii) and (v) above shall not apply to any transaction solely
between or among the Company and/or one or more Subsidiary Guarantors where the
Company or a Subsidiary Guarantor is the continuing Person.
Defeasance
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things:
(A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if
any, and accrued interest on the Notes on the Stated Maturity of such
payments in accordance with the terms of the Indenture and the Notes,
(B) the Company has delivered to the Trustee (i) either (x) an
Opinion of Counsel to the effect that Holders will not recognize income,
gain or loss for federal income tax purposes as a result of the Company's
exercise of its option under this "Defeasance" provision and will be
subject to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel must
be based upon (and accompanied by a copy of) a ruling of the Internal
Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following
the deposit, the trust fund will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law,
(C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or
any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound and
(D) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel
to the effect that the Notes will not be delisted as a result of such
deposit, defeasance and discharge.
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Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause (d)
under "Events of Default" with respect to such other covenants and clauses (e)
and (f) under "Events of Default" shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by the Company to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the
Company exercises its option to omit compliance with certain covenants and
provisions of the Indenture with respect to the Notes as described in the
immediately preceding paragraph and the Notes are declared due and payable
because of the occurrence of an Event of Default that remains applicable, the
amount of money and/or U.S. Government Obligations on deposit with the Trustee
will be sufficient to pay amounts due on the Notes at the time of their Stated
Maturity but may not be sufficient to pay amounts due on the Notes at the time
of the acceleration resulting from such Event of Default. However, the Company
will remain liable for such payments and the Subsidiary Guarantor's Note
Guarantee with respect to such payments will remain in effect.
Modification and Waiver
The Indenture may be amended, without the consent of any Holder, to:
(i) cure any ambiguity, defect or inconsistency in the Indenture; provided that
such amendments do not adversely affect the interests of the Holders in any
material respect; (ii) comply with the provisions described under
"Consolidation, Merger and Sale of Assets"; (iii) comply with any requirements
of the Commission in connection with the qualification of the Indenture under
the Trust Indenture Act; (iv) evidence and provide for the acceptance of
appointment by a successor Trustee; or (v) make any change that, in the good
faith opinion of the Board of Directors (as set forth in a resolution of the
Board of Directors), does not materially and adversely affect the rights of any
Holder. Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) waive a default in the payment of principal of, premium,
if any, or interest on the Notes, (vi) release any Subsidiary Guarantor from its
Note Guarantee, except as provided in the Indenture or (vii) reduce the
percentage or aggregate principal amount of outstanding Notes the consent of
whose Holders is necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults.
No Personal Liability of Incorporators, Stockholders, Officers, Directors,
or Employees
The Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or
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upon any obligation, covenant or agreement of the Company in the Indenture, or
in any of the Notes or because of the creation of any Indebtedness represented
thereby, shall be had against any incorporator, stockholder, officer, director,
employee or controlling person of the Company or of any successor Person
thereof. Each Holder, by accepting the Notes, waives and releases all such
liability.
Concerning the Trustee
The Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties, and in accordance with such standards, as are specifically set forth in
such Indenture. If an Event of Default has occurred and is continuing, the
Trustee will use the same degree of care and skill in its exercise of the rights
and powers vested in it under the Indenture as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
Book-Entry; Delivery and Form
The certificates representing the Notes will be issued in fully
registered form without interest coupons. Notes sold in offshore transactions in
reliance on Regulation S under the Securities Act will initially be represented
by one or more permanent global Notes in definitive, fully registered form
without interest coupons (each a "Regulation S Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel Bank.
Notes sold in reliance on Rule 144A will be represented by one or
more permanent global Notes in definitive, fully registered form without
interest coupons (each a "Restricted Global Note"; and together with the
Regulation S Global Notes, the "Global Notes") and will be deposited with the
Trustee as custodian for, and registered in the name of a nominee of, DTC.
Each Global Note (and any Notes issued in exchange therefor) will be
subject to certain restrictions on transfer.
Notes transferred to Institutional Accredited Investors who are not
qualified institutional buyers ("Non-Global Purchasers") will be in registered
form without interest coupons ("Certificated Notes"). Upon the transfer of
Certificated Notes initially issued to a Non-Global Purchaser to a qualified
institutional buyer or in accordance with Regulation S, such Certificated Notes
will, unless the relevant Global Note has previously been exchanged in whole for
Certificated Notes, be exchanged for an interest in a Global Note.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a Restricted Global Note directly through DTC if they are
participants in such system, or indirectly through organizations which are
participants in such system.
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Investors may hold their interests in a Regulation S Global Note
directly through Cedel Bank or Euroclear, if they are participants in such
systems, or indirectly through organizations that are participants in such
system. On or after the 40th day following the Closing Date, investors may also
hold such interests through organizations other than Cedel Bank or Euroclear
that are participants in the DTC system. Cedel Bank and Euroclear will hold
interests in the Regulation S Global Notes on behalf of their participants
through DTC.
So long as DTC, or its nominee, is the registered owner or holder of
a Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Note for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in a Global Note will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global Note
held through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the
ordinary way in accordance with DTC rules and will be settled in same-day funds.
Transfers between participants in Euroclear and Cedel Bank will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
The Company expects that DTC will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in a Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for Certificated Notes, which it will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies and certain other organizations that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the
foregoing procedures in order to facilitate transfers of interests in a Global
Note among participants of DTC, Euroclear and Cedel Bank, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility or, with respect to
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the Trustee, liability for the performance by DTC, Euroclear or Cedel Bank or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary
for the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in a Global Note may receive Certificated
Notes in accordance with the DTC's rules and procedures in addition to those
provided for under the Indenture.
PLAN OF DISTRIBUTION
This Prospectus is to be used by Morgan Stanley Dean Witter in
connection with offers and sales of the Notes in market-making transactions at
negotiated prices relating to prevailing market prices at the time of sale.
Morgan Stanley Dean Witter may act as principal or agent in such transactions.
Morgan Stanley Dean Witter has no obligation to make a market in the Notes, and
may discontinue its market-making activities at any time without notice, at its
sole discretion.
There is currently no established public market for the Notes. The
Company does not currently intend to apply for listing of the Notes on any
securities exchange. Therefore, any trading that does develop will occur on the
over-the-counter market. The Company has been advised by Morgan Stanley Dean
Witter that it intends to make a market in the Notes but it has no obligation to
do so and any market-making may be discontinued at any time. No assurance can be
given that an active public market for the Notes will develop.
Morgan Stanley acted as placement agent in connection with the original
private placement of the Notes. As of July 12, 1999, Morgan Stanley beneficially
owned approximately 8.7% of the outstanding common stock of the Company, on a
converted basis, and was a party to a Stockholders' Agreement with the Company
and certain other principal stockholders dated as of October 1998. In addition,
Michael J. Petrick, an officer of Morgan Stanley, is a member of the board of
directors of the Company.
Although there are no agreements to do so, Morgan Stanley Dean Witter,
as well as others, may act as broker or dealer in connection with the sale of
Notes contemplated by this Prospectus and may receive fees or commissions in
connection therewith.
The Company has agreed to indemnify Morgan Stanley Dean Witter against
certain liabilities under the Securities Act or to contribute to payments that
Morgan Stanley Dean Witter may be required to make in respect of such
liabilities.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income
tax consequences of the acquisition, ownership and disposition of the Notes
offered hereby. The federal income tax considerations set forth below are based
upon currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable Treasury Regulations ("Treasury Regulations"),
judicial authority, and current administrative rulings and pronouncements of the
Internal Revenue Service (the "IRS"). There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been, or will be,
sought on the issues discussed herein. Legislative, judicial, or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences discussed
below.
As used in this summary, the term "U.S. Holder" means the beneficial
owner of a Note that is for U.S. federal income tax purposes (i) an individual
citizen or resident of the United States, (ii) a corporation,
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partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income tax regardless of its
source, or (iv) a trust whose administration is subject to the primary
supervision of a United States court and which has one or more United States
persons who have the authority to control all substantial decisions of the
trust.
As used in this summary, the term "Non-United States Holder" means an
owner of a Note that is, for United States federal income tax purposes, (i) a
nonresident alien individual, (ii) a foreign corporation, (iii) a foreign estate
or foreign trust or (iv) a foreign partnership one or more of the members of
which is for United States federal income tax purposes, a nonresident alien
individual or a foreign corporation, estate or trust.
The summary does not address all potential federal tax considerations
that may be relevant to particular Holders and does not address foreign, state,
local or other tax consequences. This summary does not address the federal
income tax consequences to taxpayers who are subject to special treatment under
federal income tax laws (such as insurance companies, financial institutions,
small business investment companies, dealers in securities or currencies,
broker-dealers, U.S. Holders whose functional currency is not the U.S. dollar
and tax-exempt organizations) or Holders that hold Notes as part of a position
in a straddle, or as part of a hedging, conversion, or other integrated
investment transaction for federal income tax purposes. This summary is limited
to Holders that hold the Notes as capital assets within the meaning of section
1221 of the Code.
Each prospective purchaser of the Notes is urged to consult his or her
own tax advisor with respect to his or her particular tax situation affecting
the purchase, holding and disposition of the Notes.
Tax Consequences to U.S. Holders
Interest
Generally, interest paid on the Notes will be taxable to a U.S. Holder
as ordinary income at the time it accrues or is received in accordance with such
U.S. Holder's method of accounting for U.S. federal income tax purposes.
Market Discount
A Note is acquired at a market discount if the purchase price of the
Note is less than its principal amount, subject to a statutory de minimis
exception. Unless a U.S. Holder has elected to include the market discount in
income as it accrues, gain, if any, realized on any subsequent disposition
(other than in connection with certain nonrecognition transactions) or full or
partial principal payment of such Note will be treated as ordinary income to the
extent of the market discount that has not previously been included in income
and is treated as having accrued during the period such U.S. Holder held such
Note.
Any market discount will be considered to accrue ratably from the date
of acquisition to the maturity date unless the U.S. Holder elects to accrue on a
constant interest rate method. A U.S. Holder may make such election with respect
to any Note but, once made, such election is irrevocable.
A U.S. Holder may elect to include market discount in income as it
accrues through the use of either the straight-line method or the constant
interest method. Once made, this election will apply to all market discount
obligations acquired by the electing U.S. Holder during the taxable year for
which the election is made, and all subsequent taxable years and cannot be
revoked without the consent of the IRS. If an election is made to include market
discount in income currently, the basis of the Note in the hands of the U.S.
Holder will be increased by the amount of the market discount that is included
in income.
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Unless a U.S. Holder who acquires a Note at a market discount elects to
include market discount in income currently, such U.S. Holder may be required to
defer deductions for a portion of the interest paid on indebtedness allocable to
such Note in an amount not exceeding the deferred market discount, until such
income is realized.
Bond Premium
If a U.S. Holder purchases a Note and immediately after the purchase
the adjusted basis of the Note exceeds the sum of all amounts payable on the
instrument after the purchase date (other than payments of stated interest), the
Note will be treated as having been acquired with "bond premium." However, if
the Note is purchased at a time when the Note may be optionally redeemed by the
Company for an amount that is in excess of its principal amount, special rules
would apply that could result in a deferral of the amortization of bond premium
until later in the term of the Note. A U.S. Holder may elect to amortize such
bond premium on a constant yield method over the remaining term of such Note
(or, if it results in a smaller amount of amortizable bond premium, until an
earlier call date).
If bond premium is amortized, the amount of interest that must be
included in the U.S. Holder's income for each accrual period, will be reduced by
the portion of premium allocable to such period. If the amortizable bond premium
allocable to an accrual period exceeds the amount of stated interest allocable
to such accrual period, such excess would be allowed as a deduction for such
accrual period, but only to the extent of the U.S. Holder's prior interest
inclusions on the Note; any excess is generally carried forward and allocable to
the next accrual period. A U.S. Holder who elects to amortize bond premium must
reduce his tax basis in the Note by the amount of bond premium amortized. If an
election to amortize bond premium is not made, a U.S. Holder must include the
full amount of each interest payment in income in accordance with his or her
regular method of accounting and may receive a tax benefit (in the form of
capital loss or reduced capital gain) from the premium only in computing such
U.S. Holder's gain or loss upon the sale or disposition or payment of the
principal amount of the Note.
An election to amortize premium will apply to amortizable bond premium
on all notes and other bonds, held or subsequently acquired by the U.S. Holder
on or after the first day of the first taxable year to which the election
applies and may be revoked only with the consent of the IRS.
Disposition of the Notes
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (except to the extent attributable
to accrued interest that has not been included in income) and such U.S. Holder's
adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note
will generally equal the U.S. Holder's purchase price for such Note, increased
by any market discount previously included in income by the U.S. Holder and
decreased by any principal payments received by the U.S. Holders, and by any
amortizable bond premium. Gain or loss realized on the sale, exchange or
retirement of a Note generally will be capital gain or loss. For individuals,
capital gains are generally taxed at a 20% maximum tax rate for Notes held for
more than one year. The deduction of capital losses is subject to certain
limitations.
The Company does not intend to treat the possibility of an optional
redemption or repurchase of the Notes as giving rise to any accrual of original
issue discount or recognition of ordinary income upon redemption, sale or
exchange of a Note.
824915.10
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<PAGE>
Backup Withholding
A U.S. Holder (other than certain exempt recipients including
corporations) will be subject to backup withholding at the rate of 31 percent
with respect to interest paid on or the proceeds of a sale, exchange or
redemption of, the Notes if (i) the payee fails to furnish a Taxpayer
Identification Number ("TIN"), (ii) the TIN furnished by the payee is incorrect,
(iii) the payee is notified by the IRS that he or she has failed to report
payments of interest or dividends or (iv) under certain circumstances, the payee
has failed to certify under penalty of perjury that the payee is not subject to
withholding. Amounts paid as backup withholding do not constitute an additional
tax and will be credited against the U.S. Holder's federal income tax liability,
so long as the required information is provided to the IRS. The payor generally
will report to the U.S. Holders of the Notes and to the IRS the amount of tax
withheld, if any.
Tax Consequences to Non-United States Holders
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or 30% withholding tax if such interest
is not effectively connected with the conduct of a trade or business within the
United States (or a permanent establishment therein, if a tax treaty applies) by
such Non-United States Holder and such Non-United States Holder (i) does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company; (ii) is not a controlled foreign
corporation with respect to which the Company is a "related person"; (iii) is
not a bank whose receipt of interest on a Note is described in Section
881(c)(3)(A) of the Code; and (iv) certifies, under penalties of perjury, that
such Holder is not a United States person which certification may be made on IRS
Form W-8BEN or substitute form and provides the Company with such Holder's name
and address or a securities clearing organization, bank, or other financial
institution that holds customers' securities in the ordinary course of its trade
or business certifies, under penalties of perjury, that such certification and
information has been received by it or a qualifying intermediary from the
Non-United States Holder and furnishes the Company with a copy thereof. With
respect to Notes held by a foreign partnership, under current law, the
certification may be provided by the foreign partnership. However, for interest
and proceeds paid with respect to a Note after December 31, 1999, unless the
foreign partnership has entered into a withholding agreement with the IRS, a
foreign partnership will be required, in addition to providing IRS Form W-8IMY,
to attach an appropriate certification by each partner on IRS Form W-8BEN.
If a Non-United States Holder of a Note is engaged in a trade or
business in the United States, and if interest (including market discount) on
the Note (or gain realized on its sale, exchange or other disposition) is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from withholding tax, will generally be subject
to United States income tax on such effectively connected income in the same
manner as if it were a U.S. Holder. Such Holder will be required to provide to
the withholding agent a properly executed IRS Form 4224 (or, after December 31,
2000, a Form W-8ECI) to claim an exemption from withholding tax. In addition, if
such Non-United States Holder is a foreign corporation, it may be subject to a
30% branch profits tax (unless reduced or eliminated by an applicable treaty) of
its effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
Gain on Disposition
A Non-United States Holder will generally not be subject to United
States federal income tax on gain recognized on a sale, redemption or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States (or a permanent
establishment therein, if a tax treaty applies) by the Non-United States Holder,
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual, such Holder is present in the United States for 183 or more days in
the taxable year and certain other conditions are met or (iii) the Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates.
824915.10
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<PAGE>
Information Reporting and Backup Withholding
The Company will, where required, report to the Non-United States
Holders of Notes and the IRS the amount of any interest paid on the Notes in
each calendar year and the amounts of tax withheld, if any, with respect to such
payments.
31% backup withholding tax and certain information reporting will not
apply to payments of interest to Non-United States Holders with respect to which
either the requisite certification, as described above, has been received or an
exemption has otherwise been established; provided that neither the Company nor
its payment agent has actual knowledge that the Non-United States Holder is a
United States person or that the conditions of any other exemption are not in
fact satisfied. Information reporting and backup withholding requirements will
apply, however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the Notes by or through a United States office of a United States
or foreign broker, unless such Holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a disposition of
the Notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the Non-United States Holder is
not a United States person, and such broker has no actual knowledge to the
contrary, or the Non-United States Holder establishes an exemption. Neither
information reporting nor backup withholding generally will apply to a payment
of the proceeds of a disposition of the Notes by or through a foreign office of
a foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under
the backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will
be passed upon for the Company by Battle Fowler LLP, New York, New York. Mr.
Lawrence Mittman, who is a partner of Battle Fowler LLP, is a director of the
Company.
EXPERTS
The consolidated financial statements of Marvel Enterprises, Inc.
(formerly Toy Biz, Inc.) and its subsidiaries as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998
incorporated herein by reference to Marvel Enterprises, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1998 have been audited by Ernst &
Young LLP, independent auditors, as stated in their report included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Marvel Entertainment Group,
Inc. and its subsidiaries as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997 incorporated herein by
reference to Marvel Entertainment Group, Inc.'s Annual Report on Form 10-K/A for
the year ended December 31, 1997 have been audited by Ernst & Young LLP,
independent auditors, as stated in their report included therein (which contains
an explanatory paragraph describing conditions that raise substantial doubt
about Marvel Entertainment Group, Inc.'s ability to continue as a going concern,
as described in Note 1 to the consolidated financial statements) and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
824915.10
53
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14 of Form S-3. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the approximate amount of the
fees and expenses (other than underwriting discounts and commissions) incurred
in connection with the issuance and distribution of the notes to be registered
under this Registration Statement. Neither Morgan Stanley & Co. Incorporated nor
Dean Witter Reynolds, Inc. will bear any portion of the fees and expenses
estimated below.
Registration fee................................................$ 69,500
Printing........................................................... 5,000
Legal fees and expenses............................................70,000
Accounting fees and expenses.......................................30,000
Trustee fees and expenses.......................................... 2,500
Miscellaneous expenses....................................... 3,000
Total..........................................$ 180,000
========
Item 15 of Form S-3; Item 20 of Form S-4. Indemnification of Directors
and Officers
In accordance with Section 102(b)(7) of the Delaware General
Corporation Law, the Registrants' certificates of incorporation and/or by-laws
(i) eliminate, with certain exceptions, the Registrants' directors' personal
liability to the Registrants or their stockholders for monetary damages for
breach of fiduciary duty as a director and (ii) provide, to the extent permitted
by the Delaware General Corporation Law, for the Registrants' indemnification of
present or former directors, officers or incorporators against various costs
they may incur in connection with certain lawsuits and similar proceedings in
which they become involved by reason of their relationship to the Registrants.
Only those who have acted in good faith are entitled to the Registrants'
indemnification. In certain cases, the Registrants' indemnification payments may
be made, conditionally, before the lawsuit or similar proceeding is complete.
824915.10
II-1
<PAGE>
Item 16 of Form S-3; Item 21 of Form S-4. Exhibits and Financial Statement
Schedules
(a) Exhibits.
Exhibit No.
- -------------
4.1 Form of Note.
4.2 Indenture, dated as of February 25, 1999, defining the rights of
holders of 12% senior notes due 2009. (Incorporated by reference
to Exhibit 4.3 to the Annual Report on Form 10-K of Marvel
Enterprises, Inc. for the year ended December 31, 1998.)*
4.3 Registration Rights Agreement, dated February 25, 1999, by and
among Marvel Enterprises, Inc., certain subsidiaries of
Marvel Enterprises, Inc., Morgan Stanley & Co. Incorporated and
Warburg Dillon Read LLC. (Incorporated by reference to Exhibit
10.5 to the Annual Report on Form 10-K of Marvel Enterprises,
Inc. for the year ended December 31, 1998.)*
5 Opinion of Battle Fowler LLP as to the legality of the Exchange
Notes.
12 Computation of ratio of earnings to fixed charges.*
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.
24 Power of attorney.*
25 Form T-1 Statement of eligibility of trustee.*
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to DTC Participants.*
99.4 Form of Letter to Clients.*
99.5 Form of Instructions from Clients.*
*Previously filed.
Item 17 of Form S-3; Item 22 of Form S-4. Undertakings
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of
824915.10
II-2
<PAGE>
the estimated maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrants hereby undertake that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrants' annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer, or controlling
person of the Registrants in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act, and will
be governed by the final adjudication of such issue.
The undersigned registrants hereby undertake to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under section
305(b)(2) of the Trust Indenture Act.
The undersigned registrants hereby undertake to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The undersigned registrants hereby undertake to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
824915.10
II-3
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on July 20, 1999.
MARVEL ENTERPRISES, INC.
a Delaware corporation (Registrant)
By: /s/ F. Peter Cuneo
-------------------------
F. Peter Cuneo
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ------------- ------------- -----------
/s/ F. Peter Cuneo President and Chief Executive Officer July 20, 1999
- ---------------------------------- (principal executive officer)
F. Peter Cuneo
* Senior Vice President and Chief Financial July __, 1999
- ---------------------------------- Officer (principal financial and accounting
Robert S. Hull officer)
* Chairman of the Board of Directors July __, 1999
- ----------------------------------
Morton E. Handel
* Director July __, 1999
- ----------------------------------
Avi Arad
* Director July __, 1999
- ----------------------------------
Mark Dickstein
* Director July __, 1999
- ----------------------------------
Shelley F. Greenhaus
* Director July __, 1999
- ----------------------------------
James F. Halpin
</TABLE>
824915.10
II-4
<PAGE>
Signature Title Date
- ------------ ---------- ------------
* Director July __, 1999
- ----------------------------------
Michael M. Lynton
* Director July __, 1999
- ----------------------------------
Lawrence Mittman
* Director July __, 1999
- ----------------------------------
Isaac Perlmutter
* Director July __, 1999
- ----------------------------------
Rod Perth
* Director July __, 1999
- ----------------------------------
Michael J. Petrick
*By: /s/ William H. Hardie, III July 20, 1999
- ----------------------------------
William H. Hardie, III
Attorney-in-fact
824915.10
II-5
Pursuant to the requirement of the Securities Act of 1933, the
Registrants have duly caused this Amendment No. 1 to Registration Statement to
be signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on July 20, 1999.
MEI HOLDING COMPANY F CORP.
MEI HOLDING COMPANY S CORP.
MRV, INC.
MARVEL CHARACTERS, INC.
MARVEL ENTERTAINMENT GROUP, INC.,
Delaware corporations (Registrants)
By: /s/ F. Peter Cuneo
------------------------------------------
F. Peter Cuneo
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
<S> <C> <C>
/s/ F. Peter Cuneo
------------------------------------ July 20, 1999
F. Peter Cuneo
President (principal executive officer)
/s/ Robert S. Hull July 20, 1999
-------------------------------------
Robert S. Hull
Vice President, Treasurer and Director (principal
financial and accounting officer)
/s/ William H. Hardie, III July 20, 1999
-------------------------------------
William H. Hardie, III
Director
</TABLE>
<PAGE>
Pursuant to the requirement of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, State of New York, on July 20, 1999.
MARVEL RESTAURANT VENTURE CORP.,
a Delaware corporation (Registrant)
By: /s/ William H. Hardie, III
---------------------------
William H. Hardie, III
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
<S> <C> <C>
/s/ William H. Hardie, III July 20, 1999
-------------------------------------
William H. Hardie, III
President (principal executive officer and
principal financial and accounting officer)
/s/ F. Peter Cuneo
------------------------------------ July 20, 1999
F. Peter Cuneo
Director
/s/ Robert S. Hull July 20, 1999
-------------------------------------
Robert S. Hull
Director
</TABLE>
EXHIBIT A
[FACE OF NOTE]
MARVEL ENTERPRISES, INC.
12% Senior Note due 2009
[CUSIP] [CINS] [ISIN] [__________]
No. ____ $250,000,000
MARVEL ENTERPRISES, INC., a Delaware corporation (the "Company",
which term includes any successor under the Indenture hereinafter referred to),
for value received, promises to pay to _____________, or its registered assigns,
the principal sum of ____________ ($____) on June 15, 2009.
Interest Payment Dates: June 15 and December 15, commencing June 15,
1999.
Regular Record Dates: June 1 and December 1.
MEI Holding Company F Corp., a Delaware corporation, MEI Holding
Company S Corp., a Delaware corporation, MEI Holding Company FHF Corp., a
Delaware corporation, MRV, Inc., a Delaware corporation, Malibu Comics
Entertainment, Inc., a California corporation, Marvel Characters, Inc., a
Delaware corporation, Marvel Entertainment Group, Inc., a Delaware corporation,
and Marvel Restaurant Venture Corp., a Delaware corporation (collectively, the
"Guarantors," which term includes any successors under the Indenture hereinafter
referred to and any Restricted Subsidiary that provides a Note Guarantee
pursuant to the Indenture), have jointly and severally, fully and
unconditionally guaranteed the payment of principal, premium, if any, and
interest on the Notes.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
MARVEL ENTERPRISES, INC.
By:
------------------------------------
Name:
Title:
By:
------------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 12% Senior Notes due 2009 described in the within-mentioned
Indenture.
Date: [________,____] IBJ WHITEHALL BANK & TRUST COMPANY,
as Trustee
By:
------------------------------
Authorized Signatory
<PAGE>
[REVERSE SIDE OF NOTE]
MARVEL ENTERPRISES, INC.
12% Senior Note due 2009
1. Principal and Interest.
The Company will pay the principal of this Note on June 15, 2009.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of
the Notes at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
June 15, 1999 and no interest shall be paid on this Note prior to June 15, 1999.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before August 25, 1999
in accordance with the terms of the Registration Rights Agreement dated February
25, 1999 among the Company, each of the Guarantors and Morgan Stanley & Co.
Incorporated and Warburg Dillon Read LLC, the annual interest rate borne by the
Notes shall be increased by 0.5% from the rate shown above accruing from August
25, 1999, payable in cash semiannually, in arrears, on each Interest Payment
Date, commencing December 15, 1999 until the Exchange Offer is consummated or
the Shelf Registration Statement is declared effective. The Holder of this Note
is entitled to the benefits of such Registration Rights Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from February 25, 1999;
provided that, if there is no existing default in the payment of interest and
this Note is authenticated between a Regular Record Date referred to on the face
hereof and the next succeeding Interest Payment Date, interest shall accrue from
such Interest Payment Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
<PAGE>
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each June 15 and December 15,
commencing June 15, 1999 to the persons who are Holders (as reflected in the
Security Register at the close of business on the June 1 or December 1
immediately preceding the Interest Payment Date), in each case, even if the Note
is cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Company will make payment to the Holder that surrenders this Note to a Paying
Agent on or after June 15, 2009.
The Company will pay principal, premium, if any, and as provided
above, interest in money of the United States that at the time of payment is
legal tender for payment of public and private debts. However, the Company may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder's registered address (as reflected in
the Security Register). If a payment date is a date other than a Business Day at
a place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of February
25, 1999 (the "Indenture"), among the Company, each of the Guarantors and IBJ
Whitehall Bank & Trust Company, trustee (the "Trustee"). Capitalized terms
herein are used as defined in the Indenture unless otherwise indicated. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act. The Notes are subject to
all such terms, and Holders are referred to the Indenture and the Trust
Indenture Act for a statement of all
<PAGE>
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the Indenture, the
terms of the Indenture shall control.
The Notes are general unsecured obligations of the Company.
The Company may, subject to Article Four of the Indenture and
applicable law, issue additional Notes under the Indenture.
5. Optional Redemption.
The Notes are redeemable, at the Company's option, in whole or in
part, at any time or from time to time, on or after June 15, 2004 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing June 15 of the
years set forth below:
Year Redemption Price
---- ----------------
2004............................... 106.000%
2005............................... 104.000%
2006............................... 102.000%
2007 and thereafter................ 100.000%
At any time prior to June 15, 2002, the Company may redeem up to 35%
of the aggregate principal amount of the Notes with the Net Cash Proceeds of one
or more sales of Capital Stock of the Company (other than Disqualified Stock),
at any time as a whole or from time to time in part, at a Redemption Price
(expressed as a percentage of principal amount) of 112%, plus accrued and unpaid
interest to the Redemption Date (subject to the rights of Holders of record on
the relevant Regular Record Date that is prior to the Redemption Date to receive
interest due on an Interest Payment Date); provided that (i) at least 65% of the
aggregate principal amount of Notes originally issued on the Closing Date
remains outstanding after each such redemption and (ii) notice of such
redemption shall be mailed within 60 days of the related sale of Capital Stock.
<PAGE>
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days
after any Change of Control occurs to each Holder at its last address as it
appears in the Security Register. Notes in original denominations larger than
$1,000 may be sold to the Company in part. On and after the Payment Date,
interest ceases to accrue on Notes or portions of Notes surrendered for purchase
by the Company, unless the Company defaults in the payment of the purchase
price.
7. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
8. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
9. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an
<PAGE>
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
10. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain provisions thereof, and (b) to the Stated Maturity,
the Company will be discharged from certain covenants set forth in the
Indenture.
11. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, suffer to exist restrictions on the
ability of Restricted Subsidiaries to make certain payments to the Company,
issue Capital Stock of Restricted Subsidiaries, Guarantee Indebtedness of the
Company, engage in transactions with Affiliates, suffer to exist or incur Liens,
enter into sale-leaseback transactions, use the proceeds from Asset Sales, or
merge, consolidate or transfer substantially all of its assets. Within 45 days
after the end of each fiscal quarter (90 days after the end of the last fiscal
quarter of each year), the Company shall deliver to the Trustee an Officers'
Certificate stating whether or not the signers thereof know of any Default or
Event of Default under such restrictive covenants.
13. Successor Persons.
When a successor person or other entity assumes all the obligations
of its predecessor under the Notes and the Indenture, the predecessor person
will be released from those obligations.
<PAGE>
14. Defaults and Remedies.
Any of the following events constitutes an "Event of Default" under
the Indenture:
(a) default in the payment of principal of (or premium, if
any, on) any Note when the same becomes due and payable at maturity,
upon acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the
same becomes due and payable, and such default continues for a period
of 30 days;
(c) default in the performance or breach of the provisions
of the Indenture applicable to mergers, consolidations and transfers
of all or substantially all of the assets of the Company or the
failure to make or consummate an Offer to Purchase in accordance with
Section 4.11 or Section 4.12 of the Indenture;
(d) the Company or any Guarantor defaults in the
performance of or breaches any other covenant or agreement of the
Company in the Indenture or under the Notes (other than a default
specified in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written notice by
the Trustee or the Holders of 25% or more in aggregate principal
amount of the Notes;
(e) there occurs with respect to any issue or issues of
Indebtedness of the Company, any Guarantor or any Significant
Subsidiary having an outstanding principal amount of $5 million or
more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created,
(A) an event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of
such acceleration and/or (B) the failure to make a principal payment
at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days
of such payment default;
(f) any final judgment or order (not covered by insurance)
for the payment of money in excess of $5 million in the aggregate for
all such final judgments or orders against all such Persons (treating
any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company, any Guarantor or any Significant
Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments
<PAGE>
or orders outstanding and not paid or discharged against all such
Persons to exceed $5 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(g) a court having jurisdiction in the premises enters a
decree or order for (A) relief in respect of the Company, any
Guarantor or any Significant Subsidiary in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company, any Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company, any
Guarantor or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company, any Guarantor or any
Significant Subsidiary and, in each case, such decree or order shall
remain unstayed and in effect for a period of 30 consecutive days;
(h) the Company, any Guarantor or any Significant
Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment
of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company,
any Guarantor or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company, any
Guarantor or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors; or
(i) except as permitted by the Indenture, any Guarantor
repudiates its obligations under any Note Guarantee.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company or any Guarantor occurs and is continuing, the Notes
automatically become due and payable. Holders may not enforce the Indenture or
the Notes except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of at least a majority in principal amount of the
Notes then outstanding may direct the Trustee in its exercise of any trust or
power.
<PAGE>
15. Guarantee.
The Company's obligations under the Notes are fully and
unconditionally guaranteed, jointly and severally, by the Guarantors.
16. Trustee Dealings with the Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company, the Guarantors or their Affiliates and may otherwise deal with the
Company, the Guarantors or their Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No incorporator or any past, present or future partner, stockholder,
other equityholder, officer, director, employee or controlling person, as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
18. Authentication.
This Note shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on the other side of this Note.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to Marvel Enterprises,
Inc, 387 Park Avenue South, New York, New York 10016; Attention: Chief Financial
Officer.
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -----------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- -----------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing -----------------------------------------------------
attorney to transfer said Note on the books of the Company with full
power of substitution in the premises.
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.11 or 4.12 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or 4.12 of the Indenture, state the amount (in
principal amount at maturity):
$-------------------.
Date:
Your Signature:
--------------------------------------------------------------
(Sign exactly as your name appears on the other side of this
Note)
Signature Guarantee:
----------------------------------------------------------
Signature must be guaranteed by a participant in a recognized
signature guaranty medallion program or other signature guarantor acceptable to
the Trustee.
Exhibit 5
(212) 856-7000
(212) 339-9150
[email protected]
July 20, 1999
Board of Directors
Marvel Enterprises, Inc.
387 Park Avenue South
New York, NY 10016
Re: Marvel Enterprises, Inc.
Registration Statement on Form S-3/S-4 (No. 333-78143)
------------------------------------------------------
Gentlemen:
We have acted as counsel for Marvel Enterprises, Inc., a Delaware
corporation (the "Company"), and its wholly owned subsidiaries MEI Holding
Company F Corp., MEI Holding Company S Corp., MRV, Inc., Marvel Characters,
Inc., Marvel Entertainment Group, Inc. and Marvel Restaurant Venture Corp.
(collectively, the "Guarantors") in connection with the preparation of the
registration statement on Form S-3/S-4 (Registration No. 333-78143), and any
amendments thereto (the "Registration Statement"), as filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration under the Securities Act of (i)
$250,000,000 aggregate principal amount of 12% Senior Notes due 2009 of the
Company (the "Notes") and (ii) the guarantees (the "Guarantees") of the Notes
issued by the Guarantors. The Notes and the Guarantees are to be issued under an
Indenture, dated as of February 25, 1999 (the "Indenture"), among the Company,
the Guarantors and IBJ Schroeder & Company, as trustee.
<PAGE>
2
Board of Directors July 20, 1999
In rendering this opinion, we have relied upon, among other things,
our examination of such records of the Company and the Guarantors as we have
deemed necessary for the purpose of the opinions expressed below.
In addition, we have assumed the genuineness of all signatures and
the authenticity of all documents submitted to us as originals, and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. As to various questions of fact material to this opinion,
we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of officers or directors of the Company and the
Guarantors and upon documents, records and instruments furnished to us by the
Company and the Guarantors, without independently checking or verifying the
accuracy of such documents, records and instruments furnished to us by the
Company and the Guarantors.
Our opinion is limited to the laws of the State of New York, the
General Corporation Law of the State of Delaware and the federal law of the
United States. No opinion is expressed as to the effect that any other law or
the law of any other jurisdiction may have upon the subject matter of the
opinion expressed herein under conflicts of law principles, rules and
regulations or otherwise.
Based on the foregoing, we are of the opinion that (subject to
compliance with the pertinent provisions of the Securities Act and, with respect
to the Indenture, the Trust Indenture Act of 1939, as amended, and to compliance
with such securities or "blue sky" laws of any jurisdiction as may be
applicable):
1. The Notes have been duly authorized and, when duly executed,
authenticated and delivered in accordance with the Indenture, the Notes will
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and similar laws
affecting creditors' rights and remedies generally and subject to general
principles of equity.
2. The Guarantees have been duly authorized and constitute valid and
binding obligations of the Guarantors, enforceable against the Guarantors in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and similar laws affecting
creditors' rights and remedies generally and subject to general principles of
equity.
<PAGE>
3
Board of Directors July 20, 1999
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement and to the use
of our name under the caption "Legal Matters" in the prospectus included
therein. In giving this consent, we do not admit that we are within the category
of persons whose consent is required by Section 7 of the Securities Act or the
rules and regulations promulgated thereunder by the Securities and Exchange
Commission.
Very truly yours,
/s/ Battle Fowler LLP
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 and Form S-4) and related
prospectuses of Marvel Enterprises, Inc. for the registration of up to
$250,000,000 of 12% Senior Notes due 2009 and to the incorporation by reference
of our report dated February 5, 1999, except for Note 3, as to which the date is
February 11, 1999 and Notes 1 and 5, as to which the date is February 25, 1999,
with respect to the consolidated financial statements of Marvel Enterprises,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
July 20, 1999
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference of our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3 and Form S-4) and related
prospectuses of Marvel Enterprises, Inc. for the registration of up to
$250,000,000 of 12% Senior Notes due 2009 and to the incorporation by reference
of our report dated April 14, 1998, with respect to the consolidated financial
statements and schedule of Marvel Entertainment Group, Inc. included in its
Annual Report (Form 10-K/A) for the year ended December 31, 1997, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
July 20, 1999
