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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-13638
MARVEL ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
(formerly known as Toy Biz, Inc.)
Delaware 13-3711775
(State of incorporation) (I.R.S. employer identification
number)
387 Park Avenue South
New York, New York 10016
(Address of principal executive offices, including zip code)
(212) 696-0808
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
8% Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per
share
Plan Warrants for the purchase of Common Stock
Class A Warrants for the purchase of Common Stock
Class B Warrants for the purchase of 8% Cumulative Convertible Exchangeable
Preferred Stock
Class C Warrants for the purchase of Common Stock
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The approximate aggregate market value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of March 22, 1999 was
$81,355,950, based on a price of $6.25 per share, the closing sales price for
the Registrant's Common Stock as reported in the New York Stock Exchange
Composite Transaction Tape on that date.
As of March 25, 1999, there were 33,532,127 outstanding shares of the
Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
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PART I.................................................................. 1
ITEM 1. BUSINESS.................................................. 1
ITEM 2. PROPERTIES................................................ 18
ITEM 3. LEGAL PROCEEDINGS......................................... 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 19
PART II................................................................. 20
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 20
ITEM 6. SELECTED FINANCIAL DATA................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 21
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................... 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 28
PART III................................................................ 29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........ 29
ITEM 11. EXECUTIVE COMPENSATION.................................... 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 44
PART IV................................................................. 45
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................. 45
SIGNATURES.............................................................. 50
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act (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 include the information
concerning our possible or assumed future results of operations set forth
under the sections entitled "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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. In addition to the risks and
uncertainties discussed in "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," investors should
consider those discussed under "Risk Factors" and, among others, the
following:
. our potential need for additional financing,
. our potential inability to integrate the operations of Marvel
Entertainment Group, Inc. with those of Toy Biz, Inc.,
. our potential inability to successfully implement our business strategy,
. a decrease in the level of media exposure or popularity of our
characters resulting in declining revenues from products based on those
characters,
. the lack of commercial success of properties owned by major
entertainment companies that have granted us toy licenses,
. the lack of consumer acceptance of new product introductions,
. 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,
. changing consumer preferences,
. production delays or shortfalls,
. continued pressure by certain of our major retail customers to
significantly reduce their toy inventory levels,
. the impact of competition and changes to the competitive environment on
our products and services,
. changes in technology (including uncertainties associated with Year 2000
compliance),
. changes in governmental regulation, and
. other factors detailed from time to time in our filings with the
Securities and Exchange Commission.
These forward-looking statements speak only as of the date of this report.
We do not intend to update or revise any forward-looking statements to reflect
events or circumstances after the date of this report, including changes in
our business strategy or planned capital expenditures, or to reflect the
occurrence of unanticipated events.
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PART I
ITEM 1. BUSINESS
Unless the context otherwise requires: (i) the term the "Company" and the
term "Marvel" each refer to Marvel Enterprises, Inc. (formerly Toy Biz, Inc.),
a Delaware corporation, and its subsidiaries; (ii) the term "MEG" refers to
Marvel Entertainment Group, Inc., a Delaware corporation, and its
subsidiaries, prior to the consummation of the Merger, as defined below, and
its emergence from bankruptcy; (iii) the term "Toy Biz, Inc." refers to the
Company prior to the consummation of the Merger; (iv) the term "Marvel
Licensing" refers to the Marvel Licensing business division of the Company;
(v) the term "Marvel Publishing" refers to the Marvel Publishing business
division of the Company; (vi) the term "Toy Biz" refers to the Toy Biz
business division of the Company; and (vii) the term "Panini SpA" refers to
Panini, S.p.A., an Italian corporation and a wholly-owned subsidiary of the
Company. Unless otherwise indicated, the statement of operations data and
statement of cash flows data included in this Report do not include (i) Fleer
Corp., Frank H. Fleer Corp. and SkyBox International Inc. (each a wholly-owned
subsidiary of the Company), substantially all of the assets of which the
Company sold on February 11, 1999 (the "Fleer Sale"), or (ii) Panini SpA,
which the Company has decided to dispose of. Certain of the characters and
properties referred to in this Report are subject to copyright and/or
trademark protection.
Background
On October 1, 1998, the Company acquired MEG by means of a merger between
MEG and the Company's wholly-owned subsidiary MEG Acquisition Corp. (the
"Merger"). Upon consummation of the Merger, the Company changed its name from
"Toy Biz, Inc." to "Marvel Enterprises, Inc." The Merger was part of the
Fourth Amended Joint Plan of Reorganization for MEG that was confirmed by the
United States District Court for the District of Delaware, which had
jurisdiction of MEG's chapter 11 case. MEG's chapter 11 case had begun in
December 1996 with MEG's filing of a voluntary petition for bankruptcy
protection. Prior to the reorganization, MEG was a principal stockholder of
Toy Biz, Inc. See "--The Reorganization."
In order to finance a portion of the consideration required to consummate
the Merger and certain other transactions contemplated by the plan of
reorganization, the Company borrowed $200 million (the "Bridge Loan") from UBS
AG, Stamford Branch ("UBS"). The Company used a portion of the proceeds from
an offering, completed on February 25, 1999 (the "Notes Offering"), of $250
million of 12% senior notes due 2009 (the "Notes") to repay the Bridge Loan.
UBS is an affiliate of Warburg Dillon Read LLC, one of the placement agents in
the Notes Offering.
General
The Company is one of the world's most prominent character-based
entertainment companies, with a proprietary library of over 3,500 characters.
The Company operates in the licensing, comic book publishing and toy
businesses in both domestic and international markets. The Company's library
of characters includes Spider-Man, X-Men, Captain America, Fantastic Four and
The Incredible Hulk and is one of the oldest and most recognizable collections
of characters in the entertainment industry. Management believes that the
potential of the Company's library remains largely unrealized.
The Company's characters have been developed through a long history of
comic book plots and storylines which give each of them their own personality,
context and depth. In addition, the Company's characters exist in the "Marvel
Universe," a fictitious universe which provides a unifying historical and
contextual background for the characters and storylines. The "Marvel Universe"
concept permits the Company to use some of its more popular characters to
enhance the exposure of its lesser-known characters. Management believes that
the "Marvel Universe" concept and the Company's well-developed characters and
storylines make the Company's library difficult to
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replicate and well-suited for television programming, feature films and other
media, which generate licensing and toy demand.
The Company's business is divided into three integrated and complementary
operating divisions: Marvel Licensing, Marvel Publishing and Toy Biz.
Marvel Licensing
Marvel Licensing licenses the Company's characters for use in a wide
variety of consumer products. Marvel Licensing also receives fees from the
sale of licenses to a variety of media, including television, feature films
and destination-based entertainment.
Marvel Publishing
Marvel Publishing is one of the world's leading publishers of comic books.
Marvel Publishing has published comic books based upon the Company's
characters for over 60 years, including some of the world's most popular comic
book titles. The Company also licenses the right to publish comic books based
on its characters in numerous foreign countries and in multiple languages
worldwide. The comic book publishing business provides for both the creation
of new characters and storylines and the maintenance of a loyal comic book
audience. Management believes that a substantial portion of this audience
constitutes customers for the Company's toys and other licensed products.
Toy Biz
Toy Biz designs, develops, markets and distributes both innovative and
traditional toys in the United States and internationally. Toy Biz's toy
products fall into three categories: toys based on the Company's characters,
proprietary toys designed and developed by Toy Biz, and toys based on
properties licensed to the Company by third parties. Prior to MEG's
bankruptcy, Toy Biz, Inc. derived a large portion of its revenues from
products based on characters licensed from MEG. In recent years, Toy Biz has
diversified its product line by developing a proprietary line of toys,
including three of the four top-selling large girls promotional dolls in 1997,
as well as by developing toys under licensing agreements with non-affiliated
licensors such as World Championship Wrestling (WCW/NWO), Universal Studios
(including Jurassic Park) and Sony Pictures (including Godzilla). In 1998,
approximately 65% of the Company's net toy sales were generated from products
not based on Marvel characters. Management believes that feature films or
television programming based on the Company's characters will increase
consumer interest in those characters, creating revenue opportunities for the
Company through sales of action figures and other toy merchandise. Management
estimates that toy products based on feature films, television shows, books
and other entertainment media account for more than 40% of all sales in the
toy industry.
Marvel Licensing
Marvel Licensing licenses the Company's characters for use in a wide
variety of consumer products, including apparel, costumes, children's
sleepwear, party goods, snack foods, video games, collectibles, posters,
footwear, backpacks and linens. Marvel Licensing also receives fees from the
sale of licenses to a variety of media, including television, feature films
and destination-based entertainment.
The licensing industry has witnessed considerable growth in recent years.
Licensing is now a standard cash generating component of any major media
event. In addition, the Company believes that toy companies will increase
their dependence on licensed products in the future and that toy products
based on movies, television shows, books and other entertainment media will
account for a substantial portion of all toy sales.
The following are examples of media exposure and licensing opportunities
that Marvel Licensing has generated for the Company's characters:
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Television Programs
Marvel Licensing licenses the Company's characters for use in popular
television programs, including Spider-Man, which has appeared on the Fox Kids
Television Network since 1994, and X-Men, which has appeared on the Fox Kids
Television Network since 1992. In addition, The Incredible Hulk, Fantastic Four,
Iron Man and Silver Surfer have aired on syndicated television from time to time
in the past. Marvel Licensing recently granted a license for up to 26 new
episodes of Spider-Man and at least 21 new episodes of Avengers to the Fox Kids
Television Network which are scheduled for broadcast beginning in fall 1999.
Feature Films
Marvel Licensing has licensed the Company's characters for use in major
motion pictures. For example, in March 1999, the Company licensed to Sony
Pictures the right to create motion pictures based on the Spider-Man
character. The Company received a non-refundable advance against future
royalties due from Sony Pictures on revenues generated by the first motion
picture to be produced under the license. Sony will be required to make
additional advances against royalties due on revenues generated by subsequent
motion pictures. The Company also granted Sony Pictures rights to produce
television programming based on Spider-Man following the release by Sony of
the first Spider-Man motion picture. The Company and Sony Pictures have also
agreed to jointly pursue merchandise licensing opportunities for motion
picture- and television-related merchandise through a jointly owned limited
partnership. The Company has retained all other licensing rights with respect
to the Spider-Man character.
During MEG's bankruptcy, two motion pictures featuring some of the
Company's lesser-known characters were released successfully: in 1997, Sony
Pictures released Men in Black and in 1998, New Line Cinema released Blade.
Management believes that MEG was unable to fully exploit the licensing
opportunities from Blade due to its bankruptcy. In addition, contrary to the
Company's current strategy of retaining merchandising and other rights, the
merchandising, licensing and ancillary rights to Men in Black had been granted
to Sony Pictures prior to the acquisition of these characters by MEG. The
Company currently has licenses with Twentieth Century Fox to produce motion
pictures featuring X-Men, Fantastic Four and Silver Surfer. All three proposed
films have written scripts and are in varying stages of development. New Line
Cinema has announced that it intends to produce a sequel to Blade. In
addition, the Company currently has outstanding licenses with various film
studios for a number of its other characters and additional discussions are
ongoing. Under these licenses, the Company generally retains control over
merchandising rights and not less than 50% of movie-based merchandising
revenues.
Destination-Based Entertainment
Marvel Licensing licenses the Company's characters for use at theme parks,
shopping malls, special events and restaurants. For example, Marvel Licensing
has licensed the Company's characters for use as part of an attraction at the
Universal Studios Theme Park in Orlando, Florida. Universal Studios is
expected to unveil "Marvel Super Hero Island" featuring Spider-Man, The
Incredible Hulk and a number of the Company's other characters in 1999.
On-line Media
Marvel Licensing has recently developed an on-line presence for the
Company's characters through the Company's "Marvel.com" and related websites,
including the introduction of electronic comics and access to the Company's
top writers and artists. The Company's websites have received several of
America Online's quarterly Members' Choice Awards, which are presented to the
50 most popular websites among America Online's members, and also received the
KidScreen Magazine "Best Innovations" award for 1997.
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Non-Toy Merchandise
Marvel Licensing licenses the Company's characters for use in a wide
variety of consumer products, including apparel, costumes, children's
sleepwear, party goods, snack foods, video games, collectibles, posters,
footwear, backpacks and linens.
Marvel Publishing
Marvel Publishing is one of the world's leading publishers of comic books.
In recent years, the domestic comic book publishing market increased to
levels which the Company believes were speculative and unsustainable. In 1995,
the market began to decline 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.
Comic Books
Marvel Publishing has been publishing comic books since 1939 and has
developed a roster of more than 3,500 characters, including the following
popular characters: Spider-Man; X-Men (including Wolverine, Nightcrawler,
Colossus, Storm, Cyclops, Rogue, Bishop and Gambit); Captain America;
Fantastic Four (including Mr. Fantastic, Human Torch, Invisible Woman and The
Thing); The Incredible Hulk; Thor; Silver Surfer; Daredevil; Iron Man; Dr.
Strange and Ghost Rider. The Company's characters exist in the "Marvel
Universe," a fictitious universe which provides a unifying historical and
contextual background for the storylines. Marvel Publishing's titles feature
classic Marvel super heroes, newly developed Marvel characters, and characters
created by other entities and licensed to Marvel Publishing.
Marvel Publishing's approach to the Marvel characters is to present a
contemporary drama suggestive of real people with real problems. This enables
the characters to evolve, remain fresh, and, therefore, attract new and retain
old readers in each succeeding generation. The "Marvel Universe" concept
permits Marvel Publishing to use the popularity of its characters to introduce
a new character in an existing Marvel super heroes comic book or to develop
more fully an existing but lesser known character. In this manner, formerly
lesser known characters such as Thunderbolts and Wolverine have been developed
and are now popular characters in their own right and are featured in their
own monthly comic books. The "Marvel Universe" concept also allows Marvel
Publishing to use its more popular characters to make "guest appearances" in
the comic books of lesser-known or newer characters to attempt to increase the
circulation of a particular issue or issues.
Comic Book Editorial Process
Marvel Publishing's full-time editorial staff consists of an editor-in-
chief, creative director, art director and approximately 18 editors, associate
editors and assistant editors who oversee the quality and consistency of the
artwork and editorial copy and manage the production schedule of each issue.
The production of each issue requires the editors to coordinate, over a six-
to nine-month period, the activities of a writer, a pencil artist, an inker, a
colorist and a printer. The majority of this work is performed by third
parties outside of Marvel Publishing's premises.
The artists and writers include freelancers who generally are paid on a
per-page basis. They are eligible to receive incentives or royalties based on
the number of copies sold (net of returns) of the comic books in which their
work appears. Marvel Publishing has entered into agreements with certain
artists and writers under which those persons have agreed to provide their
services to Marvel Publishing on an exclusive basis, generally for a period of
one to three years. Management believes that the financial terms of these
agreements are competitive within the industry and are consistent with current
and expected levels of comic book sales.
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The creative process begins with the development of a story line. From the
established story line, the writer develops a character's actions and
motivations into a plot. After the writer has developed the plot, the pencil
artist translates it into an action-filled pictorial sequence of events. The
penciled story is returned to the writer who adds dialogue, indicating where
the balloons and captions should be placed. The completed dialogue and artwork
are forwarded to a letterer who letters the dialogue and captions in the
balloons. Next, an inker enhances the pencil artist's work in order to make
the drawing appear three-dimensional.
The artwork is then sent to a coloring artist. Typically using only four
colors in varying shades, the coloring artist uses overlays to create over 100
different tones. This artwork is subcontracted to a color separator who
produces separations and sends the finished material to the printer.
Unaffiliated entities produce color separations and print all of Marvel
Publishing's comic books. Marvel Publishing currently uses several color
separators and two printers to produce its comic books.
Customers, Marketing and Distribution
Marvel Publishing's primary target market for its comic books has been
teenagers and young adults in the 13 to 23 year old age group. Established
readership of Marvel Publishing's comic books also extends to readers in their
mid-thirties. There are two primary types of purchasers of Marvel Publishing's
comic books. One is the traditional purchaser who buys comic books like any
other magazine. The other is the reader-saver who purchases comic books,
typically from a comic book specialty store, and maintains them as part of a
collection.
Marvel Publishing's comic book publications are distributed through three
channels: (i) to comic book specialty stores on a nonreturnable basis (the
"direct market"), (ii) to traditional retail outlets on a returnable basis
(the "retail returnable market"), and (iii) on a subscription sales basis.
For the years ended December 31, 1996, 1997 and 1998, approximately 65%,
68% and 81%, respectively, of Marvel Publishing's net publishing revenues were
derived from sales to the direct market. Marvel Publishing distributes its
publications through an unaffiliated entity which, in turn, services specialty
market retailers and direct market comic book shops.
For the years ended December 31, 1996, 1997 and 1998, approximately 19%,
22% and 10%, respectively, of Marvel Publishing's net publishing revenues were
derived from sales to the retail returnable market. The retail returnable
market consists of traditional periodical retailers such as newsstands,
convenience stores, drug stores, supermarkets, mass merchandise and national
bookstore chains. The distributors sell Marvel Publishing's publications to
wholesalers, who in turn sell to the retail outlets. Management issues credit
to these distributors for unsold and returned copies. Distribution to national
bookstore chains is accomplished through a separate distributor.
For the years ended December 31, 1996, 1997 and 1998, approximately 6%, 3%
and 3%, respectively, of Marvel Publishing's net publishing revenues were
derived from subscription sales.
For the years ended December 31, 1996, 1997 and 1998, approximately 10%, 7%
and 6%, respectively, of Marvel Publishing's net publishing revenues were
derived from advertising sales and other publishing activities. In most of
Marvel Publishing's comic publications, ten pages (three glossy cover pages
and seven inside pages) are allocated for advertising. The products advertised
include sports and entertainment trading cards, video games, role playing
games, movies, candy, cereals, toys, models and other consumer packaged goods.
Marvel Publishing permits advertisers to advertise in a broad range of Marvel
Publishing's comic book publications which target specific groups of titles
that have a younger or older readership.
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Toy Biz
Toy Biz designs, develops, markets and distributes both innovative and
traditional toys in the boys', girls', activities/games and electronic toy
categories based on popular entertainment properties, consumer brand names and
proprietary designs. Toy Biz's products are distributed to a number of general
and specialty merchandisers and distributors in the United States and
internationally.
Based on industry reports, the domestic toy market (excluding video games)
generated over $22 billion in retail sales in 1997. The toy industry is a
highly competitive environment in which large mass market toy retailers
dominate the industry and feature a large selection of toys. In recent years,
entertainment conglomerates, through films, television shows and print
products, have emerged as important content providers for toy manufacturers.
In addition, continued consolidation among discount-oriented retailers can be
expected to require toy companies to keep prices low and to implement and
maintain production and inventory control methods permitting them to respond
quickly to changes in demand. In addition to the competitive pressures placed
on manufacturers and distributors, the toy industry is subject to changing
consumer preferences and significant seasonal patterns in sales. Some products
in the toy industry are perennial favorites and others are successfully marketed
only for a limited period of time. While it is impossible to predict future
trends in a business as fad-oriented as the toy industry, the Company believes
that its products are sufficiently diverse, well made and attractively priced to
benefit from those trends.
Products
Toy Biz has historically marketed a variety of toy products designed for
children of different age groups. A substantial portion of Toy Biz's products
are based on the Marvel characters. During the period 1994 to 1998, the
Company had average annual sales of $92.9 million of toys based on the Marvel
characters, such as the Spider-Man Web Blaster, the top-selling action figure
accessory toy during 1997. Toy Biz's current product strategy is to increase
sales of Marvel-based toys, which generate higher margins than the Company's
other toy product lines. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview." In 1998,
approximately 65% of the Company's net toy sales were generated from products
not based on the Marvel characters. Toy Biz produces a portion of its products
under licenses which it has obtained from third parties. In carrying out its
business strategy, Toy Biz continuously monitors existing licensed properties
and pursues new licenses where it believes that the new licenses fit with Toy
Biz's core product lines, or where they may add to Toy Biz's core product mix.
Some of Toy Biz's licenses confer rights to exploit original concepts
developed by toy inventors and designers. Other licenses, referred to as
trademark or brand name licenses, permit Toy Biz to produce toys bearing the
recognized consumer trademark or brand name owned by the licensor. In return
for these rights Toy Biz pays royalties to its licensors. Royalties paid by
Toy Biz to licensors and inventors are typically based on a percentage of net
sales. Most licenses have terms of one to three years and some are renewable
at the option of Toy Biz upon payment of minimum guaranteed payments or the
attainment of certain sales levels during the term of the license. In the
future, royalty rates and minimum guaranteed royalty payments may increase or
decrease depending upon various competitive forces in the toy industry.
Boys' Products. Toy Biz is a leading marketer of youth entertainment
products for domestic and international markets. These products are based on
fictional action adventure characters owned or licensed by the Company. Action
figures based on X-Men, consisting of over 300 characters, have been the most
successfully developed of Toy Biz's action adventure lines. The popularity of
the X-Men primarily resulted from that character group's long-standing success
as a comic book title, as well as the past success of the Fox Kids Television
Network's animated X-Men television show. Management believes that Toy Biz can
continue to take advantage of the popularity of the X-Men and other characters
by introducing new assortments of action figures, play sets and vehicles based
upon new television programming and motion pictures.
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The Spider-Man product line also capitalizes on an animated television
series which is broadcast on the Fox Kids Television Network. The Spider-Man
toy line includes action figures, vehicles, play sets and accessories such as
the popular Spider-Man Web Blaster. Toy Biz launched Silver Surfer products
based upon the Silver Surfer animated television program which was broadcast
on the Fox Kids Television Network from fall 1997 through spring 1998.
Toy Biz's boys' products business is also comprised of other character
genres supported by television advertising and broadcasts as well as popular
video game characters. Toy Biz continues to market a line of action figures
and play sets based on characters portrayed in the Xena: Warrior Princess
syndicated television program. Toy Biz also markets play sets and vehicles
using well-known stock car drivers and NASCAR licenses. Toy Biz has recently
launched an action figure line based upon Resident Evil, a popular video game
title. In 1998, Toy Biz introduced a popular boys' product, the WCW/NWO
Bashin' Brawlers, under a license from World Championship Wrestling. Toy Biz
also launched an action figure line based upon that license in January 1999.
Girls' Products. Toy Biz's girls' business continues to be well received by
consumers with new introductions and product line extensions. Baby Tumbles
Surprise, Take Care of Me Twins, Casey Cartwheel, Magic Stroller Baby and Come
to Me Baby Crawl 'n Walk were all top-selling dolls in the years when they were
introduced. Toy Biz also continues to market Baby Tumbles Surprise and Baby
Headstand Surprise and has extended another line with the introduction of the
Take Care of Me Triplets dolls. Toy Biz also continues to take advantage of the
name recognition and the goodwill associated with the Gerber name with the
production of its line of dolls. Management believes that Toy Biz will continue
to be an important source of new girls' products for the retail toy market.
Activity Toys. The Company believes that the Spectra Star brand name
accounts for a substantial share of the United States mass market kite
business. Toy Biz also utilizes license-driven products to expand the consumer
appeal of its kite products. Toy Biz's kite licenses have been granted by
well-known licensors such as Disney, Sony Pictures, Nickelodeon, Universal
Studios and Warner Bros. Toy Biz's activity toy products also include model
rocketry products and Toy Biz's proprietary multi-activity game tables.
Games. Toy Biz entered the game market with the introduction of Electronic
Talking Rotten Egg in 1998. Toy Biz will also introduce two new games in 1999,
Electronic Interactive Whac-a-Mole Game, based on the popular arcade game, and
WCW/NWO Electronic Talking Thumb Wrestling Game.
Design and Development
Toy Biz maintains a product development staff and also obtains new product
ideas from third-party inventors. The time from concept to production of a new
toy can range from six to twenty-four months, depending on product complexity.
Toy Biz relies on independent parties in China to manufacture a substantial
portion of its products. The remainder of its products are manufactured in
Mexico or the United States. As a matter of policy, Toy Biz uses several
different manufacturers. By concentrating its manufacturing among certain
manufacturers, Toy Biz pursues a strategy of selecting manufacturers at which
Toy Biz's product volume qualifies Toy Biz as a significant customer. Toy Biz
is not a party to any long-term agreement with any manufacturer. See "--Risk
Factors--We depend on toy manufacturers in China."
Toy Biz's Spectra Star products are manufactured mainly in Mexico by the
Company's Mexican subsidiary. During 1997, Toy Biz completed the construction
of a new manufacturing facility in Mexico in order to expand manufacturing
capacity for the Spectra Star and possibly other product lines.
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Toy Biz maintains a Hong Kong office from which it regularly monitors the
progress and performance of its manufacturers and subcontractors. Toy Biz also
uses Acts Testing Labs (H.K.) Ltd., a leading independent quality-inspection
firm, to maintain close contact with its manufacturers and subcontractors in
China and to monitor quality control of Toy Biz's products. Toy Biz uses an
affiliate of Acts Testing Labs (H.K.) Ltd. to provide testing services for a
limited amount of product currently produced in the United States.
Customers, Marketing and Distribution
Toy Biz markets and distributes its products in the United States and
internationally, with sales to customers in the United States accounting for
approximately 80%, 78% and 84% of the Company's net toy sales in 1996, 1997
and 1998, respectively.
Outlets for Toy Biz's products in the United States include specialty toy
retailers, mass merchandisers, mail order companies and variety stores, as
well as independent distributors who purchase products directly from Toy Biz
and ship them to retail outlets. Toy Biz's five largest customers include Toys
'R' Us, Inc., Wal-Mart Stores, Inc., Kmart Corporation, Target Stores, Inc., a
division of Dayton-Hudson Corp., and Kay-Bee Toys, a division of Consolidated
Stores, Inc., which customers accounted in the aggregate for approximately
60%, 60% and 66% of the Company's total toy sales in 1996, 1997 and 1998,
respectively. See "--Risk Factors--Our customer base for toys is
concentrated."
Toy Biz maintains a sales and marketing staff and retains various
independent manufacturers' sales representative organizations in the United
States. Toy Biz's management coordinates and supervises the efforts of its
salesmen and its other sales representatives. Toy Biz also directly introduces
and markets to customers new products and extensions to previously marketed
product lines by participating in the major toy trade shows in New York, Hong
Kong and Europe and through a showroom maintained by Toy Biz in New York.
Toy Biz's products are sold outside the United States through independent
distributors by the Company's Hong Kong subsidiary, under supervision of Toy
Biz's management. Toy Biz's international product line generally includes
products currently or previously offered in the United States, packaged to
meet local regulatory and marketing requirements.
Toy Biz utilizes an independent public warehouse in the Seattle, Washington
area, for storage of its products. Management believes that adequate
alternative storage facilities are available. Disruptions in shipments from
China or from this facility could have a material adverse effect on Toy Biz.
Intellectual Property
The Company believes that its library of proprietary characters as well as
its "Marvel" trade name represent its most valuable assets and that its
library could not be easily replicated. The Company currently conducts an
active program of maintaining and protecting its intellectual property rights
in the United States and in approximately 55 foreign countries. The Company's
principal trademarks have been registered in the United States, certain of the
countries in Western Europe and South America, Japan, Israel and South Africa.
While the Company has registered its intellectual property in these countries,
and expects that its rights will be protected in these countries, certain
other countries do not have intellectual property laws that protect
United States holders of intellectual property and there can be no assurance
that the Company's rights will not be violated or its characters "pirated" in
these countries.
Advertising
Although a portion of the Company's advertising budget for its toy products
is expended for newspaper advertising, magazine advertising, catalogs and
other promotional materials, the Company allocates a majority of its
advertising budget for its toy products to television promotion. The Company
advertises on national television
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and purchases advertising spots on a local basis. Management believes that
television programs underlying the Company's toy product lines increase exposure
and awareness.
The Company currently engages Tangible Media, Inc. ("Tangible Media"), an
affiliate of Isaac Perlmutter, to purchase certain of its advertising. Mr.
Perlmutter is a director and a principal stockholder of the Company. The
Company retains the services of a media consulting agency for advice on
matters of advertising creativity.
Competition
The industries in which the Company competes are highly competitive.
Marvel Licensing competes with a diverse range of entities which own
intellectual property rights in characters. These include D.C. Comics (which
is owned by Time Warner, Inc.), The Walt Disney Company and other
entertainment-related entities. Many of these competitors have greater
financial and other resources than the Company.
Marvel Publishing competes with over 500 publishers in the United States.
Some of Marvel Publishing's competitors such as D.C. Comics are part of
integrated entertainment companies and may have greater financial and other
resources than the Company. Marvel Publishing also faces competition from
other entertainment media, such as movies and video games, but management
believes that it benefits from the low price of comic books in relation to
those other products.
Toy Biz competes with many larger toy companies in the design and
development of new toys, the procurement of licenses and for adequate retail
shelf space for its products. The larger toy companies include Hasbro, Inc.,
Mattel Inc., Playmates, Inc. and Bandai, Co., Ltd., and Toy Biz considers Just
Toys, Inc., Empire of Carolina, Inc. and Ohio Art Co. to be among its
competitors as well. Many of these competitors have greater financial and
other resources than the Company. The toy industry's highly competitive
environment continues to place cost pressures on manufacturers and
distributors. Discretionary spending among potential toy consumers is limited
and the toy industry competes for those dollars along with the makers of
computers and video games. Management believes that strong character and
product licenses, the industry reputation and ability of its senior
management, the quality of its products and its overhead and operational
controls have enabled Toy Biz to compete successfully.
Employees
As of December 31, 1998, the Company employed approximately 1,650 persons
(including employees of the Fleer/SkyBox and Panini businesses). The Company
also contracts for creative work on an as-needed basis with approximately 250
active freelance writers and artists. The Company's employees are not subject
to any collective bargaining agreements. Management believes that the
Company's relationship with its employees is good.
Government Regulations; Insurance
The Company is subject to the provisions of, among other laws, the Federal
Hazardous Substances Act and the Federal Consumer Product Safety Act. Those
laws empower the Consumer Product Safety Commission (the "CPSC") to protect
children from hazardous toys and other articles. The CPSC has the authority to
exclude from the market articles which are found to be hazardous. Similar laws
exist in some states and cities in the United States, Canada and Europe. The
Company maintains a quality control program (including the inspection of goods
at factories and the retention of an independent quality-inspection firm)
designed to ensure compliance with applicable laws.
The Company's business exposes it to potential product liability risks
which are inherent in the design, marketing and sale of children's products.
The Company currently maintains product liability insurance and an
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<PAGE>
umbrella liability policy. In the event of a successful claim against the
Company, a lack of sufficient insurance coverage could have a material adverse
effect on Toy Biz's business and operations. Moreover, though the Company
maintains what it considers to be adequate insurance, a claim could materially
and adversely affect the reputation and prospects of the Company.
The Reorganization
On December 27, 1996, MEG and certain of its subsidiaries filed voluntary
petitions for relief under chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware (collectively,
the "Bankruptcy Case"). The Fourth Amended Plan of Reorganization (the "Plan")
proposed by Toy Biz, Inc. and certain secured creditors of MEG in the
Bankruptcy Case was confirmed by the United States District Court for the
District of Delaware (the "District Court"), which had assumed jurisdiction
over the Bankruptcy Case, and in connection with that confirmation, all
appeals relating to consummation of the Plan were withdrawn by all parties
involved in the Bankruptcy Case.
The Merger, the Charter Amendment, the Equity Securities Issuances, the
Secured Creditors Cash Payment, the Unsecured Creditors Cash Payment, the
Initial Administration Expense Claims Payment, the Panini Payment, the Panini
Guaranty, the Dispute Settlement and Professional Fees Payments, the Capital
Contribution, the Refinancing, the Bridge Loan, the Standstill Agreements and
the Litigation Trusts, in each case as described below, are referred to in this
Report collectively as the "Reorganization."
Pursuant to the Plan, the Company used the proceeds from the Bridge Loan,
together with other funds, to consummate the following transactions on October
1, 1998, the date of the Plan's consummation:
Merger
Pursuant to an Agreement and Plan of Merger, dated as of August 12, 1998,
by and among MEG, MEG Acquisition Corp., a Delaware corporation and a wholly-
owned subsidiary of Toy Biz, Inc., and Toy Biz, Inc., MEG Acquisition Corp.
merged with and into MEG, with MEG surviving as a wholly-owned subsidiary of
Toy Biz, Inc.
Charter Amendment
Toy Biz, Inc. amended (the "Charter Amendment") its restated certificate of
incorporation and by-laws to, among other things: (i) change its name from
"Toy Biz, Inc." to "Marvel Enterprises, Inc."; (ii) authorize that the Company
shall have only one class of authorized common stock, par value $.01 per share
(the "Common Stock"), with 250 million shares authorized, each share of which
will have one vote; (iii) authorize 100 million shares of preferred stock, par
value $.01 per share (the "Preferred Stock"), and designate 75 million shares
of the Preferred Stock as 8% cumulative convertible exchangeable preferred
stock, par value $.01 per share (the "8% Preferred Stock"); and (iv) provide
that the board of directors of the Company (the "Board") consist of eleven
directors.
Equity Securities Issuances
In connection with the consummation of the Plan, the Company issued
(collectively, the "Equity Securities Issuances"):
(1) 16.9 million shares of 8% Preferred Stock as follows: (a) 7.9
million shares to certain secured creditors of MEG (the "Secured
Creditors") and (b) 9 million shares to certain purchasers (the
"Preferred Stock Investors");
(2) 13.1 million shares of Common Stock to the Secured Creditors;
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<PAGE>
(3) warrants to purchase up to 1.75 million shares of Common Stock at an
exercise price of $17.25 per share (the "Plan Warrants") to certain
unsecured creditors of MEG (the "Unsecured Creditors"); and
(4) the following warrants to former stockholders of MEG and holders of
certain class securities litigation claims concerning MEG stock
(collectively, the "MEG Equity Holders"), the Unsecured Creditors and
certain other creditors of MEG: (a) three-year warrants to purchase 4
million shares of Common Stock at an exercise price of $12.00 per share
(the "Stockholder Series A Warrants"); (b) six-month warrants to purchase 3
million shares of 8% Preferred Stock at an exercise price of between $10.65
and $11.88, based on the date of warrant issuance, per share (the
"Stockholder Series B Warrants"); and (c) four-year warrants to purchase 7
million shares of Common Stock at an exercise price of $18.50 per share
(the "Stockholder Series C Warrants," and together with the Stockholder
Series A Warrants and the Stockholder Series B Warrants, the "Stockholder
Warrants"; the Stockholder Warrants and the Plan Warrants, collectively,
the "Warrants"). The completion of all distributions to the Unsecured
Creditors is pending until the District Court makes certain determinations
concerning the amount of the Unsecured Creditors' allowed claims.
Secured Creditors Cash Payment
The Company paid $221.8 million in cash (the "Secured Creditors Cash
Payment") to the Secured Creditors. An additional $10 million had been paid to
the Secured Creditors in the second quarter of 1998 in connection with the sale
of MEG's confectionery business.
Unsecured Creditors Cash Payment
The Company deposited money into a trust account that will be used to make
a cash payment to the Unsecured Creditors in an amount equal to the lesser of
(i) $2 million plus fifteen percent (15%) of the amount of their allowed
claims and (ii) $8 million (the "Unsecured Creditors Cash Payment"). The
Company currently anticipates that the Unsecured Creditors Cash Payment will
equal $8 million.
Initial Administration Expense Claims Payment
The Company agreed to pay in cash all administration expense claims
incurred in connection with the Bankruptcy Case (the "Administration Expense
Claims"). On the consummation date of the Plan, the Company paid approximately
$20.2 million of Administration Expense Claims (the "Initial Administration
Expense Claims Payment"). In December 1998, the Company paid approximately
$4.2 million of additional Administration Expense Claims. The Company
estimates that it may be required to pay between $10 million and $20 million
of additional Administrative Expense Claims, although there can be no
assurance as to the amount the Company will be required to pay. If the
aggregate amount of Administration Expense Claims is in excess of $35 million,
Zib Inc. ("Zib"), an affiliate of Mr. Perlmutter, has agreed that Zib or one
of its affiliates will lend the Company the amount of the excess in exchange
for a five-year promissory note from the Company (the "Excess Administration
Expense Claims Note") which would bear interest at 2% above the interest rate
on the Notes.
Panini Payment and Panini Guaranty
The Company paid $13 million in cash (the "Panini Payment") to certain
creditors (the "Panini Creditors") of Panini SpA and issued to the Panini
Creditors a deficiency guaranty (the "Panini Guaranty") of up to $27 million
of Panini SpA's indebtedness. The Company has the right to terminate the
Panini Guaranty at any time by delivering to holders of the restructured
Panini SpA debt a standby letter of credit or debt securities of the Company
having a value equal to the amount of the Panini Guaranty. The terms of the
Panini Guaranty provide that the Company cannot sell any of its significant
subsidiaries or change the principal nature of its business. The Company has
also agreed to indemnify the Panini Creditors against any expenses incurred by
them in enforcing the Panini Guaranty against the Company. The subsidiary
guarantors with respect to the Notes are also guarantors under the Panini
Guaranty.
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<PAGE>
Dispute Settlement and Professional Fees Payments
The Company paid $3.5 million in cash (the "Dispute Settlement Payment") to
certain claimants in the Bankruptcy Case in settlement of disputes. The
Company also paid $200,000 (the "Professional Fees Payment") to Dickstein
Partners Inc. in reimbursement of professional fees incurred in connection
with the purchase of shares of 8% Preferred Stock on October 1, 1998.
Dickstein Partners Inc. is an affiliate of Mark Dickstein, who became a
director of the Company after October 1, 1998.
Capital Contribution
The Company received a capital contribution totaling $1.5 million (the
"Capital Contribution") from an affiliate of Mr. Perlmutter and from Avi Arad.
Mr. Arad is a director, executive officer, and principal stockholder of the
Company.
Refinancing
The Company repaid all outstanding indebtedness (the "Refinancing") under
Toy Biz, Inc.'s then-existing working capital facility.
Bridge Loan
The Company obtained the Bridge Loan from UBS. A portion of the proceeds
from the Notes Offering were used to repay the Bridge Loan.
Standstill Agreements
Carl C. Icahn and High River Limited Partnership (the "High River Group")
and Vincent Intrieri and Westgate International L.P. (the "Westgate Group")
entered into standstill agreements (the "Standstill Agreements") on the
consummation date of the Plan. Pursuant to the Standstill Agreements, the High
River Group and the Westgate Group have each agreed that they will not, and will
not permit their affiliates or associates to, among other things, seek to
control the management of the Company. In addition, the Standstill Agreements
require that the High River Group and Westgate Group vote all securities
beneficially owned by them in connection with any action to be taken by the
Company's securityholders with respect to which an abstention will have the same
effect as a vote against the matter, in proportion to the votes cast with
respect to that action by all other holders of securities. With respect to all
other matters to be voted upon at a meeting of the Company's securityholders,
the High River Group and Westgate Group shall cause securities beneficially
owned by them to be present at the meeting for quorum purposes but to abstain
from voting on the matter. The Standstill Agreements will terminate on October
1, 2002, subject to earlier termination under certain circumstances.
Litigation Trusts
In accordance with the Plan, two litigation trusts were formed on the
consummation date of the Plan. Each litigation trust is now the legal owner of
litigation claims that formerly belonged to MEG and its subsidiaries. The
primary purpose of one of the trusts (the "Avoidance Litigation Trust") is to
pursue bankruptcy avoidance claims. The primary purpose of the other trust
(the "MAFCO Litigation Trust") is to pursue certain litigation claims against
Ronald O. Perelman and various related entities and individuals. The Company
has agreed to lend up to $1.1 million to the Avoidance Litigation Trust and up
to $1 million to the MAFCO Litigation Trust, in each case on a revolving
basis to fund the trust's professional fees and expenses. Each litigation
trust is obligated to reimburse the Company for all sums advanced, with simple
interest at the rate of 10% per year. Net litigation proceeds of each trust
will be distributed to the trust's beneficiaries only after the trust has,
among other things, paid all sums owed to the Company, released the Company
from any further obligation to make loans to the trust, and established
reserves to
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<PAGE>
satisfy indemnification claims. The Company is entitled to 65.1%
of net litigation proceeds from the Avoidance Litigation Trust. The Company is
not entitled to any net litigation proceeds from the MAFCO Litigation Trust.
Sources and Uses of Funds to Consummate the Reorganization
The following table sets forth the sources and uses of funds in connection
with the Reorganization:
<TABLE>
<CAPTION>
(in millions)
-------------
<S> <C>
Sources of Funds (1):
Cash.............................................................. $ 29.8
Bridge Loan....................................................... 200.0
8% Preferred Stock................................................ 90.0
Capital Contribution.............................................. 1.5
------
Total Sources of Funds......................................... $321.3
======
Uses of Funds (1):
Secured Creditors Cash Payment.................................... $221.8
Unsecured Creditors Cash Payment.................................. 8.0
Initial Administration Expense Claims Payment..................... 20.2
Panini Payment.................................................... 13.0
Dispute Settlement and Professional Fees Payments................. 3.7
Refinancing....................................................... 21.0
Fees and expenses................................................. 6.8
Working capital................................................... 26.8
------
Total Uses of Funds............................................ $321.3
======
</TABLE>
- - --------
(1) Excludes the issuance of (1) 7.9 million shares of 8% Preferred Stock to
the Secured Creditors; (2) 13.1 million shares of Common Stock to the
Secured Creditors; (3) the Plan Warrants to the Unsecured Creditors;
and (4) the Stockholder Warrants to the MEG Equity Holders, the Unsecured
Creditors and certain other creditors of MEG. See "--The Reorganization
--Equity Securities Issuances."
Risk Factors
Our substantial indebtedness could harm us.
Our substantial indebtedness could cause various problems for us, as
detailed below. Our indebtedness consists of the $250 million of Notes that we
issued in February 1999 and a guarantee of $27 million of the indebtedness of
Panini SpA. In addition, we expect to be able to borrow at least $60 million
under a new working capital facility.
The amount of our indebtedness could have important consequences to our
noteholders and stockholders, including, but not limited to, the following:
. our ability to borrow money or sell stock for working capital, capital
expenditures, acquisitions, general corporate or other purposes may be
limited;
. 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;
. our ability to develop our business and expand may be limited by the
indenture governing the Notes or by our other loan agreements; and
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<PAGE>
. 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 dividends on the 8% Preferred Stock, to pay interest on
the Notes, to repay our future 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 the indenture governing the
Notes, or the promises that we make in other loan agreements, the noteholders
or our other lenders could demand that we pay back all the money we owe them
under those agreements immediately. It is possible that the cash we generate
by operating our business, together with borrowings expected to be available
under a new working capital facility, if obtained, will be too little to make
required payments under the indenture and other loan agreements and to cover
our other cash requirements. In that case, we would need to renegotiate those
agreements, to refinance our indebtedness or to obtain additional financing;
but we might be unable to do so.
We may need additional financing but be unable to obtain it.
We may need a new working capital facility but be unable to obtain it. Even
if we obtain a new working capital facility, its terms will probably require
us to comply with various financial and other covenants in order to borrow
money. We failed to comply with similar covenants under the revolving credit
facility that we obtained on October 1, 1998 (which we terminated in February
1999). If we do not obtain a satisfactory new working capital facility, or if
we are otherwise unable to obtain any additional funds, it could significantly
harm us.
Our financing agreements limit our operating flexibility.
Both the indenture that governs the Notes and a new working capital
facility, if obtained, will constrict us in ways that may limit our financial
success. For instance, they will limit our ability to:
. incur additional indebtedness;
. incur liens;
. pay dividends, make investments or make some types of payments;
. consummate some types of asset sales;
. enter into some types of transactions with affiliates;
. merge or consolidate with any other person; or
. sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of our assets.
If we obtain a new working capital facility, it will probably require 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 new 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.
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
SpA on September 1, 1994; (2) MEG's consolidation of its financial
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<PAGE>
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 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.
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<PAGE>
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.
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, 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
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<PAGE>
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.
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 are seeking to obtain a new working capital facility; however, that
facility is not yet in place, and we might not obtain it. The failure to
obtain a working capital facility could have a material adverse effect on our
business. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
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.
The outcome of stockholder votes is controlled by a small number of
stockholders.
A majority of the voting power of our stock is held by a small number of
stockholders, who can determine the outcome of most stockholder votes. In
addition, holders of over 60% in voting power of our stock have entered into a
stockholders' agreement with us. The stockholders' agreement provides, among
other things, that its parties shall nominate and vote in favor of each
other's designated members of our board of directors. Other stockholders,
therefore, have little or no ability to select our directors while the
stockholders' agreement is in effect.
We have not yet achieved Year 2000 compliance.
Through December 31, 1998, we incurred Year 2000 conversion costs for our
Toy Biz division of approximately $1.3 million and we expect to incur an
additional $1 million in 1999. We are utilizing both internal and external
sources to remediate, or replace, and test Toy Biz's software for Year 2000
modifications. We anticipate completing the Year 2000 project for Toy Biz by
June 30, 1999.
We are in the process of completing an assessment of Year 2000 compliance
for the Marvel Licensing and Marvel Publishing operations. MEG did not
allocate resources to the Year 2000 project while it was in bankruptcy, and as
of December 31, 1998, we had incurred no Year 2000 conversion costs for Marvel
Licensing or Marvel Publishing. We believe that we can successfully complete
the Year 2000 compliance of Marvel Licensing and
17
<PAGE>
Marvel Publishing by converting their financial system into the Toy Biz
financial system. We expect to complete the conversion by August 1999. We will
also make other systems used by Marvel Licensing and Marvel Publishing Year 2000
compliant by converting them to the Toy Biz system. We estimate that the costs
to conform Marvel Licensing and Marvel Publishing will be approximately
$500,000.
The cost of the project and the date on which we believe that we will
complete the Year 2000 modifications are only estimates. We currently believe
that the Year 2000 issue will not pose significant operational problems for
our computer systems. We have begun to communicate with our customers and
major suppliers in order to determine whether the Year 2000 issue will affect
the ability of those companies' computer systems to interface with our systems
or will otherwise affect the ability of those companies to transact business
with us. We are not aware of any such material issues with our customers and
suppliers at this time. Our worst-case scenarios would be manual performance
of all accounting functions and the loss of relationships with our major
customers because of the inability of our computers to interface with theirs.
We have not developed a contingency plan to assess the likelihood of, and to
address, our worst-case scenarios. We assess our Year 2000 status regularly
and will begin to develop comprehensive contingency plans if we believe that
we will not complete the Year 2000 project in a timely manner. If our Year
2000 project is not completed on a timely basis, or if our major customers or
suppliers fail to address all the Year 2000 issues, we believe that it could
have a material adverse impact on our operations.
ITEM 2. PROPERTIES
The Company has the following principal properties:
<TABLE>
<CAPTION>
Facility Location Square Feet Owned/Leased
- - -------- -------- ----------- ------------
<S> <C> <C> <C>
Office........................ New York, New York 69,000 Leased
Office........................ New York, New York 37,000 Leased
Office........................ New York, New York 15,000 Leased
Office/Showroom............... New York, New York 5,200 Leased
Office/Warehouse.............. Yuma, Arizona 80,000 Owned
Warehouse..................... Puyallup, Washington 210,000 Leased
Manufacturing................. San Luis, Mexico 190,000 Owned
Office........................ Santa Monica, California 2,800 Leased
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and
claims incident to the normal conduct of its business. Although it is
impossible to predict the outcome of any outstanding legal proceeding and
there can be no assurances, the Company believes that its legal proceedings
and claims (including those described below), individually and in the
aggregate, are not likely to have a material adverse effect on its financial
condition, results of operations or cash flows.
Certain Bankruptcy Proceedings. As a result of the consummation of the Plan
on October 1, 1998, all claims against MEG with respect to orders issued by
the District Court in connection with the Plan have been released, as have all
claims by MEG against the Company and all claims against the Company
concerning the effect of the June 1997 change of control of MEG on the voting
power of the stock in the Company owned by MEG.
Spider-Man Litigation. The Company's subsidiaries Marvel Entertainment
Group, Inc. and Marvel Characters, Inc. (collectively, the "Marvel Parties")
have been parties to a consolidated case, concerning rights to produce and/or
distribute a live action motion picture based on the Spider-Man character and
pending in the Superior Court of the State of California for the County of Los
Angeles, to which Metro-Goldwyn Mayer Studios Inc. and two of its affiliates
("MGM"), Columbia Tristar Home Video and related entities ("Sony"), Viacom
International Inc.
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<PAGE>
("Viacom") and others were also parties. In February 1999, the Superior Court
granted summary judgment to the Marvel Parties and dismissed MGM's claims. In
March 1999, MGM, Sony and the Marvel Parties settled all remaining claims among
themselves. The litigation among Sony, the Marvel Parties and Viacom over claims
by Viacom to the rights to distribute on pay and free television a feature
length live action motion picture based on the Spider-Man character have not
been resolved. It is the Company's position that Viacom has no such rights. The
rights asserted by Viacom are alleged to arise under an agreement between the
Marvel Parties and 21st Century Productions, Inc., which the Marvel Parties
claim has expired or was terminated, and an agreement between 21st Century and
Viacom to which Marvel was not a party. A trial is currently scheduled to begin
in April, 1999. Although there can be no assurances, the Company believes that
it will ultimately be successful in establishing its television distribution
rights with respect to a Spider-Man movie and intends to litigate its claims
against Viacom vigorously.
Wolfman v. New Line Cinema Corp. et al. On August 20, 1998, Marvin A.
Wolfman commenced an action in the United States District Court for the
Central District of California against New Line Cinema Corporation, Time
Warner Companies, Inc., the Company, MEG and its wholly-owned subsidiary,
Marvel Characters, Inc., and others. The complaint alleges that the motion
picture Blade, produced and distributed by New Line pursuant to an agreement
with MEG, as well as the Company's sale of action figure toys, infringes
Wolfman's claimed copyrights and trademarks as the author of the original
stories featuring the Blade and Deacon Frost characters (collectively, the
"Work") and that Wolfman created the Work as an independent contractor engaged
by MEG. The relief sought by the complaint includes a declaration that the
defendants have infringed Wolfman's copyrights, compensatory and punitive
damages, an injunction and various other forms of equitable relief. The Company
believes that each component of the Work was created for MEG as a "work for
hire" within the meaning of the applicable copyright statute and believes that
all of Wolfman's claims are without merit and intends to defend the action
vigorously if the action is allowed to proceed.
Prior to commencing his action in California, on January 24, 1997, Wolfman
had filed a proof of claim in the bankruptcy cases of MEG and Marvel
Characters, Inc. asserting ownership rights to the Blade and Deacon Frost
characters, among others. On February 24, 1999, Wolfman and the Company entered
into a stipulation pursuant to which the United States District Court for the
District of Delaware will determine the issue of whether Wolfman or Marvel
Characters, Inc. (which is now a wholly-owned subsidiary of the Company) is the
rightful owner of Blade and Deacon Frost and a number of other characters. In
the context of this proceeding, the Company has sought a declaration that Marvel
Characters, Inc., not Wolfman, is the lawful owner of the rights claimed by
Wolfman.
Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
submitted to the Company for payment. While the amounts claimed are material
to the Company's financial position, the Company believes that the ultimate
resolution of these matters will not be material to the Company's financial
condition, results of operations or cash flows, although there can be no
assurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In the fourth quarter of 1998, the only matter submitted to a vote of the
Company's stockholders was the approval of the Company's 1998 Stock Incentive
Plan (the "Stock Incentive Plan"), which was obtained on December 30, 1998 by
written consent of the Company's stockholders. The Company received written
consents approving the Stock Incentive Plan from holders of record at the
close of business on December 11, 1998 of 64.7% in combined voting power of
the Company's outstanding Common Stock and 8% Preferred Stock. In connection
with the stockholders' approval of the Stock Incentive Plan, an information
statement was filed on December 30, 1998 with the Securities and Exchange
Commission and distributed on that day to stockholders of record at the close
of business on December 11, 1998.
19
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth, for each fiscal quarter indicated, the high
and low prices for the Company's Common Stock as reported in the New York
Stock Exchange Composite Transaction Tape.
<TABLE>
<CAPTION>
Fiscal Year High Low
----------- ----- ----
<S> <C> <C>
1997
First Quarter...................................... $ 20 $ 8 3/8
Second Quarter..................................... $ 11 $ 8 1/4
Third Quarter...................................... $ 11 $ 7 15/16
Fourth Quarter..................................... $ 9 11/16 $ 7 9/16
1998
First Quarter...................................... $ 10 7/16 $ 6 15/16
Second Quarter..................................... $ 11 5/16 $ 8 15/16
Third Quarter...................................... $ 10 7/16 $ 6 3/8
Fourth Quarter..................................... $ 6 7/8 $ 4 5/16
</TABLE>
As of March 23, 1999, there were 157 holders of record of the Company's
Common Stock.
The Company has not declared any dividends on the Common Stock. The Company
expects that a new working capital facility, if obtained, will restrict the
Company's ability to pay dividends on the Common Stock. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
During 1998, the Company made the following sales of equity securities which
were not registered under the Securities Act:
1. Pursuant to the Plan, the Company sold 9 million shares of 8% Preferred
Stock on October 1, 1998 for an aggregate of $90 million to purchasers
in a private sale. See "Item 11. Executive Compensation--Compensation
Committee Interlocks and Insider Participation--Agreements Relating to
the Purchase of Preferred Shares." Exemption from the registration
requirements of the Securities Act was claimed under Section 4(2) of the
Securities Act. Each share of 8% Preferred Stock is convertible into
1.039 shares of Common Stock.
2. In addition, pursuant to the Plan, the Company issued the following
securities (the "Section 1145 Securities") on October 1, 1998:
(a) 7.9 million shares of 8% Preferred Stock to the Secured Creditors;
(b) 13.1 million shares of Common Stock to the Secured Creditors;
(c) the Plan Warrants to the Unsecured Creditors; and
(d) the Stockholder Warrants to the MEG Equity Holders, the Unsecured
Creditors and certain other creditors of MEG.
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<PAGE>
See "Item 1. Business--The Reorganization--Equity Securities Issuances." The
consideration for the Section 1145 Securities is set forth in the Plan, and
consisted principally of the recipients' claims against MEG or interests in
MEG. Exemption from the registration requirements of the Securities Act for
the Section 1145 Securities was claimed under Section 1145 of the United
States Bankruptcy Code. The completion of all distributions to the Unsecured
Creditors is pending until the District Court makes certain determinations
concerning the amount of the Unsecured Creditors' allowed claims.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected combined or consolidated financial
data, derived from the Company's audited financial statements, for the
business of the Company for the five-year period ended December 31, 1998. The
selected financial data of the Company for the year ended December 31, 1998
are not comparable to prior periods due to the Company's acquisition of MEG on
October 1, 1998. The Company has not paid dividends on its capital stock
during any of the periods presented below.
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1994 1995 1996 1997 1998
-------- -------- -------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales.................... $156,525 $196,395 $221,624 $ 150,812 $ 232,076
Operating income (loss)...... 32,072 47,014 27,215 (49,288) (19,460)
Net income (loss)............ 18,014 28,402 16,687 (29,465) (32,610)
Basic and diluted net income
(loss) per common share
(1)......................... 0.67 1.05 0.61 (1.06) (1.23)
Preferred dividend
requirement................. -- -- 105 71 3,380
At December 31:
Balance Sheet Data:
Working capital (deficit)(2). 39,839 85,174 102,192 74,047 (133,392)
Total assets................. 104,723 152,218 171,732 150,906 689,904
Borrowings................... 21,500 -- -- 12,000 200,000
Other non-current debt....... -- -- -- -- 27,000
Due to stockholders and
affiliated companies........ 16,845 -- -- -- --
Redeemable preferred stock... -- 3,016 1,681 -- 172,380
Stockholders' equity......... 38,416 111,332 137,455 107,981 183,624
</TABLE>
- - --------
(1) Assumes 27,000,000 common and common equivalent shares outstanding for
periods prior to 1995.
(2) At December 31, 1998, the Company had a working capital deficiency of $133.4
million, due to the required repayment of the Bridge Loan. Giving effect to
the Notes Offering and the Fleer Sale, the Company would have had working
capital of $102.3 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Item 7. Management's Discussion and Analysis of Financial Condition
21
<PAGE>
and Results of Operations" and "Item 1. Business--Risk Factors" could cause
actual results to differ materially from those contained in forward-looking
statements made in this Report and in oral statements made by authorized
officers of the Company. When used in this Report, the words "intend,"
"estimate," "believe," "expect" and similar expressions are intended to identify
forward-looking statements.
The following discussion should be read in conjunction with the financial
statements of the Company and the related notes thereto, and the other
financial information included elsewhere in this Report.
Set forth below is a discussion of (i) the financial condition and results
of operations of the Company for the three fiscal years ended December 31,
1998 and (ii) results of operations of MEG for the three fiscal years ended
December 31, 1997 and for the nine months ended September 30, 1998. Because of
the significant effect of the Reorganization on the Company's results of
operations, the Company's historical results of operations and period-to-
period comparisons will not be indicative of future results.
Overview
Net Sales
The Company's net sales are generated from (i) licensing the Marvel
characters for use in merchandise, promotions, feature films, television
programs, theme parks and various other areas; (ii) publishing comic books,
including related advertising revenues; and (iii) marketing and distributing
toys, including toys based on the Marvel characters, proprietary toy products
and toys based on properties licensed to the Company from third parties. On a
pro forma basis after giving effect to the Reorganization, the Fleer Sale and
the intended disposition of the Panini activity stickers and adhesive paper
business, licensing, publishing and toys would have accounted for 4%, 19% and
77%, respectively, of the Company's net sales for the year ended December 31,
1998. The Company's strategy is to increase the media exposure of the Marvel
characters through its media and promotional licensing activities, which it
believes will create revenue opportunities for the Company through sales of
toys and other licensed merchandise. In particular, the Company plans to focus
its future toy business on marketing and distributing toys based on the Marvel
characters, which provide the Company with higher margins because no license
fees are required to be paid to third parties and, because of media exposure,
require less promotion and advertising support than the Company's other toy
categories. The Company intends to use comic book publishing to support
consumer awareness of the Marvel characters and to develop new characters and
storylines.
The Company records as revenue the present value of licensing fees from its
licensing activities at the time the Company's characters are available to the
licensee and the collection of licensing fees is reasonably assured. Licensing
fees booked as revenue but not yet realized are recorded as receivables.
Licensing receivables due more than one year beyond the balance sheet date are
discounted to their net present value.
Operating Expenses: Cost of Sales
There generally is no cost of sales associated with the licensing of the
Company's characters.
Cost of sales for comic book publishing consists of art and editorial,
printing and distribution costs. Art and editorial costs account for the most
significant portion of publishing cost of sales. Art and editorial costs
consist of compensation to editors, writers and artists. The Company generally
hires writers and artists on a freelance basis but has exclusive employment
contracts with certain key writers and artists.
The Company out-sources the printing of its comic books to an unaffiliated
company. The Company's cost of printing is subject to fluctuations in
commodity-based products such as paper.
Cost of sales for the toy business consists of product and package
manufacturing, shipping and agents' commissions. The most significant portion
of cost of sales is product and package manufacturing. The Company,
22
<PAGE>
which utilizes multiple manufacturers, solicits multiple bids for each project
in order to control its manufacturing costs. A substantial portion of the
Company's toy manufacturing takes place in China. A substantial portion of the
Company's toy manufacturing contracts are denominated in Hong Kong dollars.
Operating Expenses: Selling, General and Administrative
Selling, general and administrative costs consist primarily of advertising,
royalties, general and administrative, warehousing and store merchandising.
The most significant portion of selling, general and administrative costs is
advertising and royalties.
Advertising expense varies with the Company's product mix. In the near
term, those costs are likely to increase as the Company further promotes the
toys developed under its World Championship Wrestling (WCW/NWO) license. In
the longer term, the Company expects those costs to decrease as the Company
emphasizes toys based on the Marvel characters.
Royalties are payable on toys based on characters licensed from third
parties, such as World Championship Wrestling, Universal Studios and Sony
Pictures, as well as toys developed by outside inventors. Because the Company
expects that products based on its World Championship Wrestling license will
generate a significant portion of its operating income during the next several
years, the Company believes that royalty expense paid to World Championship
Wrestling will significantly increase. There are no royalty payments for
Marvel-character-based toy products.
General and administrative costs consist of salaries and corporate
overhead.
The Company expects warehousing and store merchandising costs to change
over time in line with the Company's toy sales.
Operating Expenses: Depreciation and Amortization
Depreciation and amortization expense consists of amortization of goodwill
and other intangibles, tooling, product design and development, packaging
design and depreciation expense. Amortization expense will increase
significantly as a result of the goodwill created pursuant to the combination
of Toy Biz, Inc. and MEG, which will be amortized over an assumed 20-year
life.
Tooling and product design and development and packaging design expense,
which are attributable to the toy business, are amortized over the life of the
respective product. The Company believes its tooling, product and packaging
design expense accounted for most of depreciation and amortization in 1998.
Results of Operations of the Company
Year ended December 31, 1998 compared with year ended December 31, 1997
The Company's net sales increased to $232.1 million for the year ended
December 31, 1998 from $150.8 million in the 1997 period. The increase in net
sales was partially due to the inclusion of $19.6 million in publishing and
licensing revenues in the fourth quarter of 1998 as a result of the
acquisition of MEG on October 1, 1998. Net sales in the toy division increased
$61.6 million to $212.4 million in 1998. Net sales in the domestic boys' toys
category increased $20.1 million to $63.2 million in 1998 due primarily to the
introduction of the WCW/NWO Bashin' Brawlers in the second half of 1998, which
accounted for $17.2 million in net sales. Net sales in the domestic girls'
toys category increased $3.3 million in 1998 to $42.0 million due primarily to
the increased product
23
<PAGE>
line of new promotional dolls in 1998. Net sales of domestic activity toys and
other products increased $3.7 million to $31.7 million in 1998 due primarily to
shipments of products related to the Godzilla feature film released in 1998. The
Company believes that its net sales in each of its domestic toy categories was
adversely affected by Toys 'R' Us' decision to eliminate excess inventory
through a one-time reduction in inventory that resulted in significant declines
in its purchases from toy manufacturers. Net sales of toy products sold through
the import division increased $16.7 million to $47.2 million in 1998, due
primarily to shipments of Godzilla products in 1998. International net toy sales
increased $.7 million to $28.1 million in 1998. The Company recorded sales
allowances of $2.9 million in 1998 which were attributable to the impact of the
Merger on the Company's relationship with certain of its international
distributors, compared to $18.0 million of sales allowances in 1997 that the
Company believes were related to the impact of the Bankruptcy Case on Toy Biz,
Inc.'s relationships with its international distributors.
Gross profit increased $60.2 million to $104.1 million for 1998 from $43.9
million in 1997 in part as a result of lower sales allowances in 1998
described above. Gross profit as a percentage of net sales increased to
approximately 45% in 1998 from approximately 29% in 1997. The inclusion of
MEG's publishing and licensing operations in the fourth quarter of 1998
resulted in $11.4 million of additional gross profit. The gross profit of the
publishing and licensing operations as a percentage of publishing and
licensing net sales was approximately 58% in the fourth quarter of 1998.
Selling, general and administrative expense increased $25.0 million to
$97.1 million in 1998 from $72.1 million in 1997. Selling, general and
administrative expense as a percentage of net sales decreased to
approximately 42% in 1998 from approximately 48% in 1997. The increase in
selling, general and administrative expense was partially due to the inclusion
of $5.7 million of publishing and licensing selling, general and
administrative expense for the fourth quarter of 1998. The increase during
1998 was also due to $11.7 million of expenses relating to the termination of
license agreements resulting from the Company's integration of MEG's
operations, as well as a $9.8 million increase in royalty and advertising
expense in 1998 primarily related to the success of the WCW/NWO Bashin'
Brawlers.
Depreciation and amortization expense decreased $1.2 million to $19.3
million in 1998 from $20.5 million in 1997 primarily due to additional
amortization expense recorded in 1997 related to early write-offs of
discontinued toy products based on Marvel characters as a result of the
Bankruptcy Case.
Amortization of goodwill and other intangibles increased $6.6 million to
$7.1 million in 1998 from $.5 million in 1997. The increase was due to the
amortization of goodwill created pursuant to the MEG acquisition completed on
October 1, 1998.
Interest expense increased $8.6 million to $9.4 million in 1998 from $.8
million in 1997, primarily due to $8.6 million in interest expense on the
Bridge Loan for the fourth quarter of 1998.
As a result of the above, the Company reported a net loss of $32.6 million
in 1998 compared to a net loss of $29.5 million in 1997. The Company reported
a loss per share after preferred dividends of $1.23 in 1998 compared to a loss
per share after preferred dividends of $1.06 in 1997.
Year ended December 31, 1997 compared with year ended December 31, 1996
Toy Biz, Inc.'s net sales decreased to $150.8 million for the year ended
December 31, 1997 from $221.6 million in the 1996 period. Net sales in the
domestic boys' toys category, including sublicense income, decreased $33.4
million to $43.1 million in 1997. Toy Biz, Inc.'s sales of domestic boys' toys
have decreased since the first quarter of 1996 as compared to the respective
prior periods, but Toy Biz, Inc. believes that the decrease in this category
has been accelerated as a result of concerns among retailers as to the impact
of the Bankruptcy Case on the
24
<PAGE>
future of the Marvel brand. Net sales in the domestic girls' toys category
decreased $19.2 million to $38.7 million in 1997 due primarily to Toy Biz,
Inc.'s decision to reduce the number of promotional dolls offered for sale by
Toy Biz, Inc. during 1997 as compared to 1996. Domestic activity toy net sales
increased $1.4 million to $28.0 million in 1997 due primarily to the expansion
of the Quest model rocket division in the 1997 period. International net sales
decreased $17.6 million to $27.4 million in 1997 from $45.0 million in 1996 due
primarily to the decreased interest in Marvel products in the international
markets. Sales by Toy Biz, Inc.'s import division, which was established in late
1996, accounted for $30.5 million in sales in the 1997 period. Net sales of
other products decreased $10.7 million to $1.1 million due primarily to a
reduction in sales in the preschool category which was transferred to the import
division in 1997. Toy Biz, Inc. recorded an additional $18.0 million of sales
allowances in the 1997 period that Toy Biz, Inc. believes are attributable to
the impact of the Bankruptcy Case on Toy Biz, Inc.'s relationships with its
distributors.
Gross profit decreased 58% to $43.9 million for 1997 from $105.2 million in
1996. Gross margin decreased to 29% in 1997 from 47% in 1996 due to changes in
Toy Biz, Inc.'s product mix, additional sales allowances required due to the
Bankruptcy Case and concerns among retailers about the future of the Marvel
brand and the introduction of the import division which generally has a lower
gross margin than average domestic sales.
SG&A expenses increased 16% to $72.1 million (approximately 48% of net
sales) in 1997 from $61.9 million (approximately 28% of net sales) in 1996.
The increase in expenses consisted primarily of $2.3 million of additional
professional fees, $5.0 million of additional advertising expenses and $1.7
million of additional royalties expensed in the 1997 period. Toy Biz, Inc.
believes that these increases were primarily attributable to the effects of
the Bankruptcy Case on Toy Biz, Inc. This increase was partially offset by a
net reduction in selling expenses due to a decrease in sales in the 1997 period,
offset by additional salaries and related expenses attributable to Toy Biz,
Inc.'s expanded product lines.
Depreciation and amortization expense increased to $21.1 million in 1997
from $16.1 million in 1996. The increase was primarily attributable to
increased amortization expense resulting from an increased investment in
product tooling and product design to support Toy Biz, Inc.'s expanded product
line and $2.5 million of additional expense resulting from early write-offs of
products.
Interest expense (income), net was $362,000 and ($596,000) for the years
ended December 31, 1997 and 1996, respectively. The net change was due
primarily to Toy Biz, Inc.'s borrowing of funds in the 1997 period compared
with investing excess cash in the 1996 period.
As a result of the above, Toy Biz, Inc. reported a net loss of $29.5
million and a loss per share of $1.06 for the year ended December 31, 1997.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash on hand, including the
net proceeds of the Fleer Sale and the Notes Offering (after repayment of the
Bridge Loan), and cash flow from operations (other than the cash flow of
Panini SpA, none of which is expected to be available to the Company as a
result of the Company's decision to dispose of Panini SpA). The Company is
also seeking to obtain a new working capital facility. The Company anticipates
that its primary needs for liquidity will be to: (i) conduct its business;
(ii) meet debt service requirements; (iii) make capital expenditures; and (iv)
pay Administration Expense Claims.
Net cash (used in) provided by the Company's operations during fiscal 1996,
1997 and 1998 was ($.9) million, $12.8 million and $29.0 million,
respectively. Net cash (used in) provided by MEG's operations during fiscal
1996 and 1997 was ($102.9) million and ($61.3) million, respectively. Net cash
(used in) MEG's operations during the nine months ended September 30, 1998 was
approximately ($3.8) million.
25
<PAGE>
At December 31, 1998, the Company had a working capital deficiency of
$133.4 million, due to the required repayment of the Bridge Loan. Giving
effect to the Notes Offering and the Fleer Sale, the Company would have had
working capital of $102.3 million.
On October 1, 1998, the Company obtained the Bridge Loan from UBS. The
Company used a portion of the proceeds from the Notes Offering to repay the
Bridge Loan on February 25, 1999.
On October 1, 1998, the Company and UBS entered into a $50 million credit
facility. There were no borrowings under that credit facility, and it was
terminated on February 25, 1999.
The Company's auditors included an explanatory paragraph in their original
audit report on the Company's 1998 consolidated financial statements regarding
the ability of the Company to continue as a going concern due to the short
repayment schedule for, and certain covenant defaults under, the Bridge Loan.
Upon the completion of the Notes Offering and the repayment of the Bridge Loan
on February 25, 1999, the Company's auditors re-issued their audit report
without the going concern explanatory paragraph.
The Company is seeking to obtain a new secured working capital facility
which will provide for borrowings of $60 million for seasonal working capital
requirements and general corporate purposes. The Company expects that its new
working capital facility will be a three-year facility bearing interest at
either (i) the lending bank's base rate plus 0.75% to 1.25%, depending on the
Company's financial performance, or (ii) the Eurodollar rate plus 2.25% to
2.75%, depending on the Company's financial performance. The Company expects to
be required to pay an annual commitment fee on the average daily unused portion
of the facility. Any outstanding letters of credit of the Company will reduce
the amount available under the new working capital facility. As of March 26,
1999, the Company had approximately $1.8 million in letters of credit
outstanding. The Company expects that its new working capital facility will be
secured by all of the Company's assets (other than the Company's intellectual
property and Panini) and contain various financial covenants, as well as
restrictions on new indebtedness, acquisitions and similar investments,
sales of assets, capital expenditures, payments of dividends, repurchases of
stock, prepayments of debt, issuances of guarantees and creations of liens.
The new working capital facility will probably also require an annual
reduction of outstanding borrowings to no more than $20 million for at least
45 consecutive calendar days during the period from January 1 through April 30
of each fiscal year.
If the Company fails to obtain a new working capital facility from an
institutional lender, the Company expects to seek to obtain such a facility
from one or more of its stockholders. There can be no assurance that the
Company will obtain a new working capital facility on the terms described
above, on customary terms or at all. A failure to do so could have a material
adverse effect on the Company. See "Item 1. Business--Risk Factors--We may
need additional financing but be unable to obtain it."
On October 1, 1998, the Company sold 9 million shares of 8% Preferred Stock
at $10 per share for an aggregate of $90 million. The 8% Preferred Stock
pays quarterly dividends on a cumulative basis on the first business day of
January, April, July and October in each year, commencing January 4, 1999.
Dividends are payable, at the option of the Board, in cash, in additional
shares of 8% Preferred Stock or in any combination thereof. The Company will
be restricted under the Indenture, and expects to be prohibited under any new
working capital facility, from making dividend payments on the 8% Preferred
Stock except in additional shares of 8% Preferred Stock. Each share of 8%
Preferred Stock may be converted, at the option of its holder, into 1.039
shares of Common Stock. The Company must redeem all outstanding shares of 8%
Preferred Stock on October 1, 2011.
In accordance with the Plan, the Company paid approximately $256.4 million
on October 1, 1998 in connection with the consummation of the Plan. See "Item
1. Business--Sources and Uses of Funds to Consummate the Reorganization."
26
<PAGE>
On the consummation date of the Plan, the Company made the Initial
Administration Expense Claims Payment of $20.2 million. In December 1998, the
Company paid approximately $4.2 million of additional Administration Expense
Claims. The Company estimates that it may be required to pay between $10
million and $20 million of additional Administration Expense Claims, although
there can be no assurance as to the amount the Company will be required to
pay.
The Company will be required to make the Unsecured Creditors Cash Payment
at such time as the amount thereof is determined. The Company has deposited $8
million into a trust account to satisfy the maximum amount of such payment.
Capital expenditures (excluding acquisitions) by the Company during fiscal
1996, 1997 and 1998 were approximately $23.8 million, $17.7 million and $17.3
million, respectively. Capital expenditures (excluding sales and acquisitions)
by MEG during fiscal 1996, 1997 and the nine months ended September 30, 1998
were approximately $43.2 million, $17.4 million and $2.7 million,
respectively.
The Company believes that cash flow from operations, together with the net
proceeds of the Fleer Sale and the Notes Offering (after repayment of the
Bridge Loan), borrowings expected to be available under a new secured working
capital facility, if obtained, and other sources of liquidity, will be
sufficient for the Company to conduct its business, meet debt service
requirements, make capital expenditures and pay Administration Expense Claims.
However, there can be no assurance that the Company's business will generate
the level of cash flow from operations that it expects or that future
borrowings will be available to the Company. If the Company's plans or
assumptions change, if the Company's assumptions prove to be inaccurate or if
the Company experiences unanticipated costs or competitive pressures, the
Company may need to seek additional capital. The Company's failure to generate
sufficient cash flow from operations or to obtain a new working capital
facility on customary terms or at all could have a material adverse effect on
its ability to conduct its business, meet debt service requirements, make
capital expenditures or pay Administration Expense Claims.
Seasonality
The Company's annual operating performance depends, in large part, on its
sales of toys during the relatively brief Christmas selling season. During
1996, 1997 and 1998, 64%, 67% and 60%, respectively, of the Company's domestic
net toy sales were realized during the second half of the year. Management
expects that the Company's 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 the Company's products during the Christmas selling season. The
Company is seeking to obtain a new working capital facility; however, that
facility is not yet in place, and the Company might not obtain it. The failure
to obtain a working capital facility on customary terms or at all could have a
material adverse effect on the Company's business. See "--Liquidity and Capital
Resources."
Year 2000
Through December 31, 1998, the Company incurred Year 2000 conversion costs
for its Toy Biz division of approximately $1.3 million and expects to incur an
additional $1 million in 1999. The Company is utilizing both internal and
external sources to remediate, or replace, and test Toy Biz's software for
Year 2000 modifications. The Company anticipates completing the Year 2000
project for Toy Biz by June 30, 1999.
The Company is in the process of completing an assessment of Year 2000
compliance for the Marvel Licensing and Marvel Publishing operations. MEG did
not allocate resources to the Year 2000 project while it was in bankruptcy,
and as of December 31, 1998, the Company had incurred no Year 2000 conversion
costs for Marvel
27
<PAGE>
Licensing or Marvel Publishing. The Company believes that it can successfully
complete the Year 2000 compliance of Marvel Licensing and Marvel Publishing by
converting their financial system into the Toy Biz financial system. The Company
expects to complete the conversion by August 1999. The Company will also make
other systems used by Marvel Licensing and Marvel Publishing Year 2000 compliant
by converting them to the Toy Biz system. Management estimates that the costs to
conform Marvel Licensing and Marvel Publishing will be approximately $500,000.
The cost of the project and the date on which the Company believes that it
will complete the Year 2000 modifications are only estimates. The Company
currently believes that the Year 2000 issue will not pose significant
operational problems for its computer systems. The Company has begun to
communicate with its customers and major suppliers in order to determine
whether the Year 2000 issue will affect the ability of those companies'
computer systems to interface with the Company's systems or will otherwise
affect the ability of those companies to transact business with the Company.
The Company is not aware of any such material issues with its customers and
suppliers at this time. The Company's worst-case scenarios would be manual
performance of all accounting functions and the loss of relationships with the
Company's major customers because of the inability of the Company's computers
to interface with theirs. The Company has not developed a contingency plan to
assess the likelihood of, and to address, its worst-case scenarios. The
Company assesses its Year 2000 status regularly and will begin to develop
comprehensive contingency plans if management believes that the Company will
not complete the Year 2000 project in a timely manner. If the Company's Year
2000 project is not completed on a timely basis, or if the Company's major
customers or suppliers fail to address all the Year 2000 issues, management
believes that it could have a material adverse impact on the Company's
operations.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item, the report of the
independent auditors thereon and the related financial statement schedule
required by Item 14(a)(2) appear on pages F-2 to F-30. See the accompanying
Index to Financial Statements and Financial Statement Schedule on page F-1.
The supplementary financial data required by Item 302 of Regulation S-K
appears in Note 11 to the December 31, 1998 Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors
The following table sets forth the name, age and position of each person
who serves as an executive officer or director of the Company:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Morton E. Handel......... 63 Chairman of the Board of Directors
Avi Arad................. 51 Director and Chief Creative Officer; President
and Chief Executive Officer of Marvel Studios
Mark Dickstein........... 40 Director
Eric Ellenbogen.......... 42 President, Chief Executive Officer and Director
Shelley Greenhaus........ 45 Director
James F. Halpin.......... 48 Director
Michael M. Lynton........ 39 Director
Lawrence Mittman......... 48 Director
Isaac Perlmutter......... 56 Director
Rod Perth................ 55 Director
Michael J. Petrick....... 37 Director
Alan Fine................ 48 President and Chief Executive Officer of Toy Biz
David J. Fremed.......... 38 Chief Financial Officer of Toy Biz
William H. Hardie, III... 36 Executive Vice President, Business Affairs and
Secretary
Robert S. Hull........... 35 Senior Vice President and Chief Financial
Officer
</TABLE>
Directors
The name, principal occupation for the last five years, selected
biographical information and period of service as a director of the Company of
each director are set forth below.
Morton E. Handel has been the Chairman of the Board of Directors of the
Company since October 1998 and was first appointed as a director of Toy Biz,
Inc. in June 1997. Mr. Handel is also the President of S&H Consulting Ltd., a
financial consulting group. Mr. Handel has held that position since 1990. Mr.
Handel has also held the position of Director and President of Ranger
Industries, Inc. since July 1997. Mr. Handel also serves as a director of
CompUSA, Inc., Ithaca Industries, Inc. and Concurrent Computer Corp., and was
previously Chairman of the Board of Directors and Chief Executive Officer of
Coleco Industries, Inc.
Avi Arad has been the Chief Creative Officer of the Company and the
President and Chief Executive Officer of the Company's Marvel Studios Division
(which is responsible for motion picture and television licensing and
development) since October 1998. Mr. Arad has been a Director of the Company
since April 1993. From April 1993 through September 1998, Mr. Arad served as a
consultant to Toy Biz, Inc. Mr. Arad was the President and Chief Executive
Officer of New World Animation, a media production company under common
control with MEG, from April 1993 until February 1997 and held the same
position at the Marvel Studios division of MEG from February 1997 until
November 1997. At New World Animation and MEG's Marvel Studios division,
Mr. Arad served as the Executive Producer of the X-Men and the Spider-Man
animated TV series. Mr. Arad has been a toy inventor and designer for more
than 20 years for major toy companies including Mattel Inc., Hasbro, Inc. and
Tyco Toys, Inc. During his career, Mr. Arad has designed or codesigned more
than 160 toys. Mr. Arad is also the owner of Avi Arad & Associates ("Arad
Associates"), a firm engaged in the design and development of toys and the
production and distribution of television programs.
29
<PAGE>
Mark Dickstein has been a Director of the Company since October 1998. Mr.
Dickstein has been the President of Dickstein Partners Inc. since 1986 and is
primarily responsible for the operations of Dickstein & Co., L.P., Dickstein
Focus Fund L.P. and Dickstein International Limited, each of which is a private
investment fund. Mr. Dickstein also serves as a director of Hills Stores
Company, News Communications Inc., and the Leslie Fay Company, Inc.
Eric Ellenbogen has been the President and Chief Executive Officer of the
Company since November 1998 and has been a Director of the Company since
October 1998. Until his appointment as Chief Executive Officer of the Company,
Mr. Ellenbogen was the President of Golden Books Family Entertainment (a
position he held from June 1998) and a Director of Golden Books Family
Entertainment (a position he held from August 1996). From August 1996 until
June 1998, Mr. Ellenbogen was the President of Golden Books' Entertainment
Division. From August 1987 until the acquisition of Broadway Video
Entertainment by Golden Books in 1996, Mr. Ellenbogen served as President of
Broadway Video, an independent motion picture and television production and
distribution company. Mr. Ellenbogen is the co-chairman of the American Film
Institute's Third Decade Council.
Shelley F. Greenhaus has been a Director of the Company since October 1998.
Mr. Greenhaus has been the President and Managing Director of Whippoorwill
Associates, Inc. ("Whippoorwill"), an investment advisor which he founded,
since 1990. Whippoorwill manages investment accounts for a prominent group of
institutional and individual investors from around the world.
James F. Halpin has been a Director of the Company since March 1995. Mr.
Halpin has been President, Chief Operating Officer and a director of CompUSA
Inc., a retailer of computer hardware, software, accessories and related
products, since May 1993 and Chief Executive Officer of CompUSA, Inc. since
December 1993. Mr. Halpin is also a director of both Interphase Corporation, a
manufacturer of high-performance networking equipment for computers, and
Lowe's Companies, Inc., a chain of home improvement stores.
Michael Lynton has been a Director of the Company since October 1998. Mr.
Lynton has been Chairman and Chief Executive Officer of The Penguin Group
since 1996. From 1987 to 1996, at The Walt Disney Company, Mr. Lynton was
President of Hollywood Pictures and President of Disney Publishing--Magazines
and Books.
Lawrence Mittman has been a Director of the Company since October 1998. Mr.
Mittman has been a partner in the law firm of Battle Fowler LLP for more than
the past five years. Mr Mittman also serves as a Director of CompUSA, Inc.
Isaac Perlmutter has served as a Director of the Company since April 1993
and he served as Chairman of the Board until March 1995. Mr. Perlmutter
purchased Toy Biz, Inc.'s predecessor company from Charan Industries, Inc. in
January 1990. Mr. Perlmutter is actively involved in the management of the
affairs of Toy Biz, Inc. and has been an independent financial investor for
more than the past five years. Mr. Perlmutter is also a director of Ranger
Industries, Inc. As an independent investor, Mr. Perlmutter currently has, or
has had within the past five years, controlling ownership interests in Ranger
Industries, Inc., Remington Products Company, Westwood Industries, Inc., a
manufacturer and distributor of table and floor lamps, Job Lot Incorporated
(and its predecessor Job Lot Associates L.P.), a discount oriented retail
chain, and Tangible Media, Inc., a media buying and advertising agency.
Rod Perth has been a Director of the Company since October 1998. From
October 1994 until July 1998, Mr. Perth was the President of USA Networks
Entertainment at USA Network. At USA Network, Mr. Perth was responsible for
the development and production of programming, including programming for the
Sci-Fi Channel. Prior to joining USA Network, Mr. Perth served as Senior Vice
President, Late Night and Non-Network Programming at CBS Entertainment, where
he was instrumental in the resurgence of the CBS Late Night Franchise and was
a key member of the team that brought the "Late Show with David Letterman" to
CBS. Mr. Perth joined the CBS Entertainment division in 1989 as Vice
President, Late Night Programs.
30
<PAGE>
Michael J. Petrick has been a Director of the Company since October 1998.
Mr. Petrick is a Managing Director of Morgan Stanley & Co. Incorporated, and
has been with Morgan Stanley since 1989. Mr. Petrick also serves as a Director
of CHI Energy, Inc. and Premium Standard Farms, Inc.
All of the Company's Directors were selected pursuant to the Stockholders'
Agreement (as defined, along with other capitalized terms used in this
paragraph, in "Certain Relationships and Related Transactions--Stockholders'
Agreement"). Messrs. Handel, Arad, Dickstein, Halpin, Mittman and Perlmutter
were designated by the Investor Group (with Mr. Dickstein designated by the
Dickstein Entities) and Messrs. Ellenbogen, Greenhaus, Lynton, Perth and
Petrick were designated by the Lender Group.
Executive Officers
The following sets forth the positions held with the Company and selected
biographical information for the executive officers of the Company who are not
Directors.
Alan Fine served as a Director of the Company from June 1997 until October
1998. Mr. Fine has been the President and Chief Executive Officer of Toy Biz
since October 1998. Previously, he served as the Chief Operating Officer of
the Company, a position to which he was appointed in September 1996. From June
1996 to September 1996, Mr. Fine was the President and Chief Operating Officer
of Toy Biz International Ltd. From May 1995 to May 1996, Mr. Fine was the
President and Chief Operating Officer of Kay-Bee Toys, a national toy
retailer, and from December 1989 to May 1995, he was the Senior Vice President
General Merchandise Manager of Kay-Bee Toys.
David J. Fremed serves as the Chief Financial Officer of Toy Biz. From
October 1996 to February 1999, Mr. Fremed served as the Company's Chief
Financial Officer and Treasurer. From 1990 to October 1996, Mr. Fremed served
as the Vice President/Controller of the Company. From 1986 to 1990, Mr. Fremed
served as controller of Admerex International, Inc. From 1984 to 1986, Mr.
Fremed served as Assistant Controller of Albert Frank-Guenther Law, Inc., a
subsidiary of Foote, Cone & Belding. From 1981 to 1984, Mr. Fremed served in
the audit department of Arthur Andersen & Co.
William H. Hardie, III has served as the Executive Vice President, Business
Affairs and Secretary of the Company since September 1997. From May 1995
through September 1997, Mr. Hardie was the Executive Vice President, Business
Affairs and Secretary of Fleer/SkyBox International, a subsidiary of MEG. From
January 1991 to May 1995, Mr. Hardie was an associate at Jones, Walker,
Waechter, Poitevant, Carrere & Denegre in New Orleans, Louisiana.
Robert S. Hull was named Senior Vice President and Chief Financial Officer
of the Company in February 1999. From 1997 until February 1999, Mr. Hull
served as Vice President and Chief Financial Officer of Wise Foods Holdings,
Inc., a snacks manufacturer and a company controlled by Kohlberg, Kravis,
Roberts & Co. From 1995 to 1997, Mr. Hull served as a Director at Borden
Capital Management Partners, a company also controlled by Kohlberg, Kravis,
Roberts & Co. From 1993 to 1995, Mr. Hull served as Vice President and Chief
Financial Officer of Altama Delta Corporation, Inc. in Atlanta, Georgia.
Section 16(a) Beneficial Ownership Reporting Compliance
Object Trading Corp., an entity wholly owned by Mr. Perlmutter, became a
10% owner of 8% Preferred Stock on October 1, 1998 and filed a Form 3 with the
Securities and Exchange Commission to report its status as a 10% owner on
October 16, 1998, five days late. Mr. Perlmutter's filings reporting the October
1, 1998 purchase of 8% Preferred Stock by Object Trading Corp. were timely.
31
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to the Chief
Executive Officers of the Company during 1998 and the Company's four most
highly compensated executive officers, other than the Company's Chief
Executive Officers, who were serving as executive officers of the Company on
December 31, 1998 (the "Named Executive Officers"), for services rendered in
all capacities to the Company and its subsidiaries during such periods.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ---------------------
Salary Bonus Securities Underlying
Name and Principal Position Year ($) ($) Options (#)
- - --------------------------- ---- --------- --------- ---------------------
<S> <C> <C> <C> <C>
Eric Ellenbogen (1).............. 1998 $ 57,692 $ -- 960,000
President and Chief Executive 1997 -- -- --
Officer 1996 -- -- --
Joseph M. Ahearn (2)............. 1998 $ 600,000 $ 450,000 100,000
President and Chief Executive 1997 500,000 150,000 --
Officer 1996 350,000 150,000 --
Avi Arad (3)..................... 1998 $ 375,000 $ -- 1,000,000
Chief Creative Officer of the 1997 375,000 -- --
Company and President and Chief
Executive 1996 375,000 -- --
Officer of the Company's Marvel
Studios
Division
Alan Fine (4).................... 1998 $ 425,000 $ 306,875 300,000
President and Chief Executive
Officer 1997 400,000 302,816 --
of the Company's Toy Biz
Division 1996 253,846 117,858 30,000 (6)
David J. Fremed.................. 1998 $ 215,000 $ 30,000 100,000
Chief Financial Officer 1997 165,000 40,000 --
1996 140,000 25,000 --
William H. Hardie, III (5)....... 1998 $ 260,000 $ 25,000 100,000
Executive Vice President, 1997 83,539 10,000 --
Business Affairs 1996 -- -- --
</TABLE>
- - --------
(1) Mr. Ellenbogen's employment with the Company commenced in December 1998.
(2) Mr. Ahearn's employment with the Company terminated in December 1998.
(3) Mr. Arad's employment with the Company commenced in October 1998. Amounts
shown for periods prior to October 1, 1998 represent consulting fees
received by Mr. Arad.
(4) Mr. Fine commenced employment with the Company in May 1996, and was
appointed as the President and Chief Executive Officer of the Company's
Toy Biz division in the fourth quarter of 1998.
(5) Mr. Hardie's employment with the Company commenced in September 1997.
(6) Represents options granted by Toy Biz, Inc. for the purchase of 30,000
shares of Class A Common Stock. These options have been canceled.
32
<PAGE>
Option Grants Table
The following table shows the Company's grants of stock options to the
Named Executive Officers in 1998. Each stock option grant was made under the
Stock Incentive Plan, which became unconditionally effective on January 20,
1999. The Company's 1995 Stock Option Plan has been terminated, and all stock
options that were outstanding under that plan have been canceled. No SARs
(stock appreciation rights) were granted by the Company in 1998.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
for Option Terms
---------------------------
Number of
Shares of Percent of
Common Stock Total Options
Underlying Granted to Exercise
Options Employees Price Expiration
Name Granted in 1998 in 1998 per share Date 5% 10%
---- --------------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric Ellenbogen (1)..... 960,000 24.3% $ 6.125 12/7/08 $ 3,697,932 $ 9,370,956
Joseph M. Ahearn (2).... 100,000 2.5% 6.125 11/17/03 169,234 373,931
Avi Arad (3)............ 1,000,000 25.3% 6.125 11/19/08 3,852,013 9,761,413
Alan Fine (4)........... 300,000 7.6% 6.125 11/17/08 1,155,604 2,928,424
David J. Fremed (5)..... 100,000 2.5% 5.875 11/23/08 369,479 936,299
William H. Hardie, III
(6).................... 100,000 2.5% 5.875 11/23/08 369,479 936,299
</TABLE>
- - --------
(1) Mr. Ellenbogen's options become exercisable in four equal installments:
options to buy 240,000 shares of Common Stock are exercisable immediately;
options to buy an additional 240,000 shares of Common Stock become
exercisable on December 7, 1999; options to buy an additional 240,000
shares of Common Stock become exercisable on December 7, 2000; and options
to buy an additional 240,000 shares of Common Stock become exercisable on
December 7, 2001.
(2) Mr. Ahearn's options become exercisable in four equal installments:
options to buy 25,000 shares of Common Stock are exercisable immediately;
options to buy an additional 25,000 shares of Common Stock become
exercisable on November 17, 1999; options to buy an additional 25,000
shares of Common Stock become exercisable on November 17, 2000; and
options to buy an additional 25,000 shares of Common Stock become
exercisable on November 17, 2001.
(3) Mr. Arad's options become exercisable in four equal installments: options
to buy 250,000 shares of Common Stock are exercisable immediately; options
to buy an additional 250,000 shares of Common Stock become exercisable on
November 19, 1999; options to buy an additional 250,000 shares of Common
Stock become exercisable on November 19, 2000; and options to buy an
additional 250,000 shares of Common Stock become exercisable on November
19, 2001.
(4) Mr. Fine's options become exercisable in four equal installments: options
to buy 75,000 shares of Common Stock are exercisable immediately; options
to buy an additional 75,000 shares of Common Stock become exercisable on
November 17, 1999; options to buy an additional 75,000 shares of Common
Stock become exercisable on November 17, 2000; and options to buy an
additional 75,000 shares of Common Stock become exercisable on November
17, 2001.
(5) Mr. Fremed's options become exercisable in four equal installments:
options to buy 25,000 shares of Common Stock are exercisable immediately;
options to buy an additional 25,000 shares of Common Stock become
exercisable on November 23, 1999; options to buy an additional 25,000
shares of Common Stock become exercisable on November 23, 2000; and
options to buy an additional 25,000 shares of Common Stock become
exercisable on November 23, 2001.
(6) Mr. Hardie's options become exercisable in four equal installments:
options to buy 25,000 shares of Common Stock are exercisable immediately;
options to buy an additional 25,000 shares of Common Stock become
exercisable on November 23, 1999; options to buy an additional 25,000
shares of Common Stock become exercisable on November 23, 2000; and
options to buy an additional 25,000 shares of Common Stock become
exercisable on November 23, 2001.
33
<PAGE>
Year-End 1998 Option Value Table
The following table shows the number and value of exercisable and
unexercisable stock options held by the Named Executive Officers at December
31, 1998. None of the Named Executive Officers exercised stock options during
1998.
<TABLE>
<CAPTION>
Number of Shares of Value of
Common Stock Underlying Unexercised
Unexercised Options at In-the-Money Options at
Year-End (1) Year-End
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Eric Ellenbogen............ 240,000 720,000 $ 15,000 $ 45,000
Joseph M. Ahearn........... 25,000 75,000 1,563 4,688
Avi Arad................... 250,000 750,000 15,625 46,875
Alan Fine.................. 75,000 225,000 4,688 14,063
David J. Fremed............ 25,000 75,000 7,813 23,438
William H. Hardie, III..... 25,000 75,000 7,813 23,438
</TABLE>
- - --------
(1) Represents shares of Common Stock underlying stock options. None of the
Named Executive Officers holds SARs (stock appreciation rights).
Compensation of Directors
Non-employee directors currently receive an annual retainer of $25,000 and
an annual grant of 10,000 shares of Common Stock to be immediately vested.
Non-employee directors also receive a one-time grant of five-year options to
purchase 20,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of the grant. Those options
expire within 90 days following the date a director ceases to serve on the
Board and vest one-third on the date of the grant and one-third on each of the
two succeeding anniversaries of the grant. In addition, the chairmen of the
Compensation and Nominating Committee and the Audit Committee receive an
annual retainer of $5,000, and the non-executive Chairman of the Board
receives an annual payment of $100,000 and a one-time grant of options to
purchase 30,000 shares of Common Stock on the same terms as those applicable
to the options made available to the other non-employee members of the Board.
Members of the Board who are officers or employees of the Company or any of
its subsidiaries do not receive compensation for serving in their capacity as
directors.
Employment Agreements
The Company has entered into employment agreements with each of the
following executive officers: Avi Arad, the Company's Chief Creative Officer
and the President and Chief Executive Officer of the Company's Marvel Studios
Division; Eric Ellenbogen, the President and Chief Executive Officer of the
Company; Alan Fine, the President and Chief Executive Officer of the Company's
Toy Biz Division; David J. Fremed, the Chief Financial Officer of the
Company's Toy Biz Division; William H. Hardie, III, the Company's Executive
Vice President--Business Affairs; and Robert S. Hull, Senior Vice President
and Chief Financial Officer of the Company. In addition, the Company has
amended its employment agreement with Joseph M. Ahearn, who is no longer
employed by the Company.
Employment and License Agreements with Mr. Arad. Pursuant to his employment
agreement, Mr. Arad has agreed to render his exclusive and full-time services
to the Company for a term of employment expiring on December 31, 2000. Under
his employment agreement, Mr. Arad receives a base salary, subject to
discretionary increases, of $375,000. Mr. Arad is entitled to discretionary
bonuses and participation in the Company's stock option plan as
34
<PAGE>
determined by the Board. Mr. Arad also is entitled to the use of an automobile
with driver and is entitled to participate in employee benefit plans generally
available to the Company's employees. Mr. Arad's employment agreement provides
that, in the event of termination other than for cause, Mr. Arad is entitled to
his salary earned through the date of termination and thereafter for a period of
up to twelve months. Mr. Arad's employment agreement replaces his consulting
agreement with the Company, under which Mr. Arad also earned $375,000 per year.
In addition, the Company and Arad Associates, of which Mr. Arad is the sole
proprietor, are parties to a license agreement which provides that Arad
Associates is entitled to receive royalty payments on net sales of Marvel-
character-based toys and on net sales of non-Marvel-character-based toys of
which Mr. Arad is the inventor of record. In no event, however, may the total
royalties payable to Arad Associates during any calendar year exceed $7.5
million. The Company accrued royalties to Mr. Arad for toys he invented or
designed of approximately $1.8 million, $3.6 million and $4.3 million during
the years ended December 31, 1996, 1997 and 1998, respectively. In September
1998, the license with Arad Associates was amended to provide that Arad
Associates will receive an annual royalty of $650,000 for products based on
the Marvel characters (the former royalty rate was 4%). The amendment leaves
intact a provision that Arad Associates is to receive a negotiated royalty not
to exceed 5% of net sales of products not based on the Marvel characters.
Employment Agreement with Mr. Ellenbogen. Pursuant to his employment
agreement, Mr. Ellenbogen has agreed to render his exclusive and full-time
services to the Company for a term of employment expiring on December 7, 2001.
Under his employment agreement, Mr. Ellenbogen receives a base salary, subject
to discretionary increases, of $750,000. Mr. Ellenbogen is eligible to earn an
annual bonus based on the attainment of certain performance goals. The target
annual bonus is equal to the greater of (i) 60% of Mr. Ellenbogen's base
salary or (ii) the highest target level of annual bonus award to any other
executive officer, and is to be paid half in cash, half in Common Stock.
Mr. Ellenbogen's employment agreement provides that, in the event of
termination, Mr. Ellenbogen is entitled to certain payments and benefits
depending on the circumstances of the termination. Upon a change in control of
the Company, Mr. Ellenbogen will be entitled to a severance payment equal to
three times the sum of his base salary and half his average bonus. If any
payments to Mr. Ellenbogen under his employment agreement ("Parachute
Payments") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code, then Mr. Ellenbogen will be entitled to receive an
additional payment from the Company (a "Gross-Up Payment") in an amount such
that Mr. Ellenbogen retains, after the payment of all taxes, an amount of the
Gross-Up Payment equal to the excise tax imposed on the Parachute Payments.
Pursuant to his employment agreement, Mr. Ellenbogen has been granted
options to purchase 960,000 shares of Common Stock. The options expire in
December 2008 and vest over a three-year period. The options become
exercisable in full upon a change in control of the Company. Mr. Ellenbogen is
also entitled to participate in employee benefit plans generally available to
the Company's employees.
Employment Agreement with Mr. Fine. Pursuant to his employment agreement,
Mr. Fine has agreed to render his exclusive and full-time services to the
Company for a term of employment expiring on December 31, 1999. Under his
employment agreement, Mr. Fine receives a base salary, subject to
discretionary increases, of $425,000. Mr. Fine is eligible to earn an annual
bonus based on the attainment of certain performance goals. The employment
agreement further provides for participation in the Company's stock option
plan as determined by the Board. Mr. Fine also receives a $1,000 monthly
automobile allowance and is entitled to participate in employee benefit plans
generally available to the Company's employees.
35
<PAGE>
Mr. Fine's employment agreement provides that, in the event of termination
other than for cause, Mr. Fine is entitled to his salary and car allowance
earned through the date of termination and thereafter for a period up to twelve
months. Mr. Fine is also entitled to the pro rata portion of his annual bonus
earned through the date of termination.
Employment Agreement with Mr. Fremed. Pursuant to his employment agreement,
Mr. Fremed has agreed to render his exclusive and full-time services to the
company for a term of employment expiring on December 31, 2000. Under his
employment agreement, Mr. Fremed receives a base salary, subject to
discretionary increases, of $215,000. Mr. Fremed is entitled to a bonus of
$30,000 per year plus discretionary bonuses and participation in the Company's
stock option plan as determined by the Board. Mr. Fremed also receives a $750
monthly automobile allowance and is entitled to participate in employee benefit
plans generally available to the Company's employees.
Mr. Fremed's employment agreement provides that, in the event of
termination other than for cause, Mr. Fremed is entitled to his salary and car
allowance earned through the date of termination and thereafter for a period
up to nine months.
Employment Agreement with Mr. Hardie. Pursuant to his employment agreement,
Mr. Hardie has agreed to render his exclusive and full-time services to the
Company for a term of employment expiring on August 31, 2000. Under his
employment agreement, Mr. Hardie receives a base salary, subject to
discretionary increases, of $250,000. Mr. Hardie is entitled to a bonus of
$25,000 per year plus discretionary bonuses and participation in the Company's
stock option plan as determined by the Board. Mr. Hardie also receives a $700
monthly automobile allowance and is entitled to participate in employee
benefit plans generally available to the Company's employees. Mr. Hardie's
bonus for the four months of his employment in 1997 was $10,000.
Mr. Hardie's employment agreement provides that, in the event of
termination at any time after March 1, 1999 other than for cause, Mr. Hardie
is entitled to a lump sum of $130,000 as well as $130,000 paid over the six-
month period immediately following termination. Mr. Hardie also forfeits any
and all stock options granted to him. Further, Mr. Hardie shall provide at
least five hours of consulting services per week in connection with the
transition of his activities for a six-month period following termination.
Employment Agreement with Mr. Hull. Pursuant to his employment agreement,
Mr. Hull has agreed to render his services to the Company for a term of
employment expiring on February 4, 2002. Under his employment agreement, Mr.
Hull receives a base salary of $285,000, subject to annual 10% increases
starting in February 2000. Mr. Hull is entitled to a bonus in 1999 of up to
half of his base salary, payable half in cash and half in Common Stock. Mr.
Hull also receives a $1,000 monthly automobile allowance and is entitled to
participate in employee benefit plans available to similarly situated
employees of the Company. Mr. Hull's employment agreement includes a one-year
severance provision including base salary and any applicable bonus
opportunity. Pursuant to his employment agreement, Mr. Hull has been granted
options to purchase 200,000 shares of Common Stock. The options will vest over
a three-year period.
Employment Agreement with Mr. Ahearn. The Company has amended its
employment agreement with Mr. Ahearn. Mr. Ahearn was the Chief Executive
Officer and a Director of the Company from April 1993 to November 1998 and the
President of the Company from November 1994 to November 1998. Under his
employment agreement, Mr. Ahearn received a base salary, subject to
discretionary increases, of $600,000. The employment agreement further
provided for the payment of discretionary bonuses and participation in the
Company's stock option plan as determined by the Board. Mr. Ahearn also
received a $1,000 monthly automobile allowance and was entitled to participate
in all employee benefit plans generally available to the Company's employees.
The amendment to Mr. Ahearn's employment agreement provides that until the
earlier of December 31, 2000 or the date on which Mr. Ahearn obtains other
employment providing him with comparable coverage, the Company will continue
to provide Mr. Ahearn with the health and hospitalization insurance coverage
which the Company generally provides to its senior executive officers. Mr.
Ahearn has also received, pursuant to the amendment to his employment
agreement,
36
<PAGE>
a special bonus of $450,000. In lieu of regular payments of base salary, on each
of January 4, 1999 and January 3, 2000, the Company will pay Mr. Ahearn $575,000
followed by $25,000 in bi-weekly payments of $1,000 each.
Confidential Information and Related Provisions. Each of the employment
agreements with Messrs. Arad, Fine, Fremed and Ahearn prohibits disclosure of
proprietary and confidential information regarding the Company and its business
to anyone outside the Company both during and subsequent to employment and
otherwise provides that all inventions made by the employees during their
employment belong to the Company. In addition, those employees agree during
their employment, and for one year thereafter, not to engage in any competitive
business activity. Mr. Ellenbogen's employment agreement prohibits disclosure of
proprietary and confidential information regarding the Company and its business
to anyone outside the Company both during and subsequent to employment.
Compensation Committee Interlocks and Insider Participation
Messrs. Dickstein, Handel, Halpin, Lynton and Petrick serve now, and served
during 1998, on the Company's Compensation and Nominating Committee. In
addition, Mr. Perlmutter and the Company's former director Donald E. Rosenblum
served on that committee's predecessor during 1998. None of the individuals
mentioned above was an officer or employee of the Company, or any of its
subsidiaries, during 1998 or formerly. Mr. Handel is, and Mr. Perlmutter once
was, the Company's non-executive Chairman of the Board.
Stockholders' Agreement
The Company and the following stockholders are parties to a Stockholders'
Agreement (the "Stockholders' Agreement") dated as of October 1, 1998:
(1) (i) Avi Arad, (ii) Isaac Perlmutter, (iii) Isaac Perlmutter T.A., (iv)
The Laura and Isaac Perlmutter Foundation Inc., (v) Object Trading
Corp., and (vi) Zib Inc. (the "Perlmutter/Arad Group");
(2) (i) Mark Dickstein, (ii) Dickstein & Company, L.P., (iii) Dickstein
Focus Fund L.P., (iv) Dickstein International Limited, (v) Elyssa
Dickstein, Jeffrey Schwarz and Alan Cooper as Trustees U/T/A/D
12/27/88, Mark Dickstein, Grantor, (vi) Mark Dickstein and Elyssa
Dickstein, as Trustees of the Mark and Elyssa Dickstein Foundation, and
(vii) Elyssa Dickstein (the "Dickstein Entities" and, together with the
Perlmutter/Arad Group, the "Investor Group"); and
(3) (i) The Chase Manhattan Bank, (ii) Morgan Stanley & Co. Incorporated
("Morgan Stanley"), and (iii) Whippoorwill as agent of and/or general
partner for certain accounts and funds (the "Lender Group").
The Stockholders' Agreement provides that its parties will take such action
as may reasonably be in their power to cause the Board to include, subject to
certain conditions, six directors designated by the Investor Group (one of
whom, subject to certain conditions, shall be designated by the Dickstein
Entities) and five directors designated by the Lender Group. The number of
directors that the Investor Group, the Dickstein Entities and the Lender Group
may designate will be reduced following June 30, 2000 in the event of
decreases in beneficial ownership of capital stock of the Company below
certain pre-determined levels, as set forth in the Stockholders' Agreement.
The Stockholders' Agreement provides for the creation of various committees of
the Board as well as the composition of those committees.
The parties to the Stockholders' Agreement have the power to vote, in the
aggregate, 64.7% in combined voting power of the outstanding shares of Common
Stock and 8% Preferred Stock.
37
<PAGE>
Registration Rights Agreements
Mr. Dickstein and certain of his affiliates, Object Trading Corp. (an
affiliate of Mr. Perlmutter), Whippoorwill as agent for and/or general partner
for certain institutions and funds, the Company and certain other parties are
parties to a Registration Rights Agreement dated as of October 1, 1998 (the
"October Registration Rights Agreement"). Mr. Arad, Mr. Perlmutter, certain
affiliates of Mr. Perlmutter (other than Object Trading Corp.) and the Company
are parties to a Registration Rights Agreement dated as of December 8, 1998
(the "December Registration Rights Agreement").
The terms of the December Registration Rights Agreement are substantially
identical to those of the October Registration Rights Agreement. Under the terms
of each of the Registration Rights Agreements, the Company has agreed to file a
shelf registration statement under the Securities Act registering the resale of
all shares of Common Stock and 8% Preferred Stock issued to the stockholder
parties thereto pursuant to the Plan, all shares of Common Stock issuable upon
conversion of those shares of 8% Preferred Stock, certain convertible debt
securities that the Company may exchange for the 8% Preferred Stock and the
Common Stock issuable upon conversion thereof and all shares of Common Stock
otherwise owned by the stockholder parties to the respective Registration Rights
Agreement as of the date thereof. The Registration Rights Agreements also give
the stockholder parties thereto piggyback registration rights with respect to
underwritten public offerings by the Company of its equity securities.
Agreements Relating to the Purchase of Preferred Shares
Zib (an entity owned entirely by Mr. Perlmutter), Dickstein Partners Inc.
(an affiliate of Mr. Dickstein) and Toy Biz, Inc. entered into a Commitment
Letter, dated November 19, 1997, in which Zib and Dickstein Partners Inc.
committed to purchase $60 million and $30 million in amount, respectively, of
the 8% Preferred Stock of the Company to be issued pursuant to the Plan.
Pursuant to the Plan and a Stock Purchase Agreement dated as of October 1,
1998, (i) certain secured creditors of MEG purchased, pursuant to an option in
the Plan, $20,071,480 in amount of 8% Preferred Stock that would otherwise
have been purchased by Zib; (ii) Whippoorwill, as agent of and/or general
partner for certain institutions and funds, purchased, pursuant to an
assignment from Zib, $5 million in amount of 8% Preferred Stock that would
otherwise have been purchased by Zib; (iii) Zib purchased $34,928,520 in
amount of 8% Preferred Stock; and (iv) Dickstein Partners Inc. and its
assignees purchased $30 million in amount of 8% Preferred Stock.
Tangible Media Advertising Services
Tangible Media, a corporation which is wholly owned by Mr. Perlmutter, acts
as the Company's media consultant in placing certain of the Company's
advertising and, in connection therewith, receives certain fees and
commissions based on the cost of the placement of such advertising. Tangible
Media received payments of fees and commissions from the Company totaling
approximately $965,000, $1,274,000 and $1,147,000 in 1996, 1997 and 1998,
respectively. The Company retains the services of a non-affiliated media
consulting agency on matters of advertising creativity.
Employee, Office Space and Overhead Cost Sharing Arrangements
The Company and Tangible Media have shared certain space at the Company's
principal executive offices and related overhead expenses. Since 1994,
Tangible Media and the Company have been parties to an employee, office space
and overhead cost sharing agreement governing the Company's sharing of
employees, office space and overhead expenses (the "Cost Sharing Agreement").
Under the Cost Sharing Agreement, any party thereto may through its employees
provide services to another party, upon request, whereupon the party receiving
services shall be obligated to reimburse the providing party for the cost of
such employees' salaries and benefits accrued for the time devoted by such
employees to providing services. Under the Cost Sharing Agreement, Tangible
Media is obligated to reimburse the Company for 18% of the rent paid under the
sublease for the space, which obligations
38
<PAGE>
reflect the approximate percentage of floor space occupied by Tangible Media.
The Cost Sharing Agreement also requires Tangible Media to reimburse the Company
for any related overhead expenses comprised of commercial rent tax, repair and
maintenance costs and telephone and facsimile services, in proportion to its
percentage occupancy. The Cost Sharing Agreement is coterminous with the term of
the Company's sublease for its executive offices. The Company paid approximately
$245,000 and $38,000 in 1996 and 1997, respectively, to Tangible Media under
this Agreement. Tangible Media paid approximately $147,000 to the Company in
1998 under this Agreement.
Showroom Sharing Arrangement
Under an expense sharing arrangement with MEG and with Classic Heroes and REC
Sound, affiliated companies controlled by Mr. Perlmutter (collectively, the
"Showroom Affiliates"), Toy Biz, Inc. and the Showroom Affiliates shared
showroom space and related overhead expenses. From 1995 to 1998, MEG and Toy
Biz, Inc. were, and until the end of 1995 Classic Heroes and REC Sound were
also, parties to a showroom space sharing agreement (the "Showroom Sharing
Agreement"). Under the Showroom Sharing Agreement, MEG was obligated to
reimburse Toy Biz, Inc. for 30% of the rent paid under the lease for the
showroom space, which obligations reflect the percentage of floor space occupied
by MEG. The agreement also required MEG to reimburse Toy Biz, Inc. for any
related overhead expenses comprised of commercial rent tax, repair and
maintenance costs and telephone and facsimile service, in proportion to their
percentage occupancy, except that overhead expenses which inure to the benefit
of a single party shall be reimbursed entirely by such party. Toy Biz, Inc. was
reimbursed approximately $47,000 in 1996 under the Showroom Sharing Agreement
and accrued approximately $26,000 as being due from MEG for 1997. The Showroom
Sharing Agreement is no longer in effect.
Old Stockholders' Agreement
In connection with Toy Biz, Inc.'s initial public offering, MEG, Mr.
Perlmutter, two affiliates of Mr. Perlmutter through which Mr. Perlmutter held
his shares of Class A Common Stock, Mr. Arad and Toy Biz, Inc. entered into a
stockholders' agreement (the "Old Stockholders' Agreement") which provided,
among other things, that MEG and Messrs. Perlmutter and Arad would each vote
their respective shares of common stock of Toy Biz, Inc. to elect as directors
of Toy Biz, Inc. (i) eight persons designated by MEG, (ii) two persons
designated by Mr. Perlmutter and (iii) one person designated by Mr. Arad. The
Old Stockholders' Agreement also permitted certain pledges of Class B Common
Stock owned by MEG and its permitted transferees. The Old Stockholders'
Agreement provided that, if MEG ceased to be controlled by Ronald O. Perelman,
MEG would be obligated to convert its shares of Class B Common Stock (which
possessed ten votes per share) into Class A Common Stock (which possessed one
vote per share), unless each of Messrs. Perlmutter and Arad consented to such
shares remaining as Class B Common Stock. The Old Stockholders' Agreement also
provided that it would terminate upon, among other events, the conversion into
Class A Common Stock of the Class B Common Stock held by MEG pursuant to a
change in control of MEG. The Old Stockholders' Agreement is no longer in
effect, and the Company now has only one class of Common Stock.
Old Registration Rights Agreement
Toy Biz, Inc. entered into a registration rights agreement with MEG, Mr.
Arad and Mr. Perlmutter (the "Old Registration Rights Agreement"), pursuant to
which they and certain of their transferees had the right, subject to certain
conditions, to require Toy Biz, Inc. to register under the Securities Act, all
or any portion of the shares of Class A Common Stock held by each of them on
two occasions. In addition, MEG, Mr. Arad, Mr. Perlmutter and certain of their
transferees had certain rights to participate in such registrations and in
other registrations by Toy Biz, Inc. of its Class A Common Stock. Toy Biz,
Inc. was obligated to pay any expenses incurred in connection with such
registrations, except for underwriting discounts and commissions attributable
to the shares of Class A Common Stock sold by MEG, Mr. Arad, Mr. Perlmutter,
and certain of their transferees pursuant to such registrations. The Old
Registration Rights Agreement is no longer in effect.
39
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table on the following page sets forth certain information regarding the
beneficial ownership of Common Stock and 8% Preferred Stock, as of March 22,
1999, by (i) each person known by the Company to be the beneficial owner of 5%
or more of the outstanding Common Stock or 8% Preferred Stock (based, in part,
upon copies of all Schedules 13D and 13G provided to the Company), (ii) each
director of the Company, (iii) each executive officer of the Company as a group.
Because the voting or dispositive power of certain shares listed in the table is
shared, the same securities are sometimes listed opposite more than one name
in the table and the sharing of voting or dispositive power is described in a
footnote. The total number of shares of Common Stock and 8% Preferred Stock
listed below for directors and executive officers as a group eliminates such
duplication.
Each share of 8% Preferred Stock is convertible by its holder into 1.039
shares of Common Stock. The table assumes that no warrants for the purchase of
stock of the Company have been exercised. As far as the Company is aware, none
of the stockholders named in the table owns any warrants for the purchase of
stock of the Company.
Under the rules of the Securities and Exchange Commission, beneficial
ownership of a share of 8% Preferred Stock constitutes beneficial ownership of
1.039 shares of Common Stock (the amount into which the 8% Preferred Stock is
convertible). Beneficial ownership of Common Stock is shown in the main part
of the table and the portion of that beneficial ownership traceable to
beneficial ownership of 8% Preferred Stock is set forth in the footnotes.
The Schedules 13D and 13G that the Company used in compiling the table take
differing positions as to whether shares of stock covered by the Stockholders'
Agreement are held with "shared voting power." The table does not attempt to
reconcile those differences.
40
<PAGE>
Shares of Common Stock Beneficially Owned
<TABLE>
<CAPTION>
Sole Sole Dispositive Shared Dispositive
Voting Power Shared Voting Power Power Power
Five Percent Stockholders, ------------------ ------------------- ------------------- ------------------
Directors Percent Percent Percent Percent
and Executive Officers Number of Class Number of Class Number of Class Number of Class
-------------------------- --------- -------- ---------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Avi Arad (1)................ -- * 33,533,436 71.9% 4,400,000 13.0% -- *
1698 Post Road East
Westport, Connecticut 06880
Isaac Perlmutter (2)........ -- * 33,533,436 71.9% 13,257,822 35.6% -- *
P.O. Box 1028
Lake Worth, Florida 33460
Mark Dickstein (3).......... 64,167 * 5,439,000 14.6% 64,167 * 5,439,000 14.6%
c/o Dickstein Partners Inc.
660 Madison Avenue
16th Floor
New York, New York 10021
The Chase Manhattan
Corporation (4)............ -- * 33,533,436 71.9% 2,112,440 6.1% -- *
270 Park Avenue
New York, New York 10017
Morgan Stanley & Co.
Incorporated (5)........... -- * 33,533,436 71.9% -- * 4,565,821 12.7%
1585 Broadway
New York, New York 10036
Whippoorwill Associates,
Inc. as agent of and/or
general partner for certain
institutions and funds
(6)........................ -- * 3,565,839 10.0% -- * 3,565,839 10.0%
11 Martine Avenue
White Plains, NY 10606
Value Partners, Ltd......... 3,459,845 10.1% -- * 3,459,845 10.1% -- *
Suite 808
4514 Cole Avenue
Dallas, Texas 75205
Morton E. Handel (7)........ 27,667 * -- * -- * -- *
Eric Ellenbogen (8)......... 240,000 * -- * -- * -- *
Shelley F. Greenhaus (9).... 16,667 * -- * -- * -- *
James F. Halpin (10)........ 21,667 * -- * -- * -- *
Michael M. Lynton (10)...... 16,667 * -- * -- * -- *
Lawrence Mittman (10)....... 16,667 * -- * -- * -- *
Rod Perth (10).............. 16,667 * -- * -- * -- *
Michael J. Petrick.......... -- * -- * -- * -- *
Alan Fine (11).............. 75,000 * -- * -- * -- *
David J. Fremed (12)........ 25,000 * -- * -- * -- *
William H. Hardie, III
(12)....................... 25,000 * -- * -- * -- *
Robert S. Hull.............. -- * -- * -- * -- *
Joseph M. Ahearn (13)....... 25,100 * -- * -- * -- *
All current executive officers
and directors as a group (15
persons) (14).............. 545,169 1.6% 33,533,436 71.9% 17,721,989 43.0% 5,443,000 14.6%
</TABLE>
- - --------
* Less than 1%.
(1) Figures include 250,000 shares of Common Stock subject to stock options
granted to Mr. Arad pursuant to the Stock Incentive Plan which are
immediately exercisable. Mr. Arad is a party to the Stockholders'
Agreement. Except for the 4,400,000 shares over which Mr. Arad may be
deemed to have sole dispositive power, shares over which Mr. Arad may be
deemed to have shared voting power (which include shares of Common Stock
underlying 12,358,929 shares of 8% Preferred Stock) are beneficially
owned by other parties to the Stockholders' Agreement and it is only by
reason of Mr. Arad's position as a party to the Stockholders' Agreement
that Mr. Arad may be deemed to possess that shared voting power.
(2) Mr. Perlmutter is a party to the Stockholders' Agreement.
(a) Figures include 6,667 shares of Common Stock subject to stock
options granted to Mr. Perlmutter pursuant to the Stock Incentive Plan
which are immediately exercisable. Other shares over which Mr. Perlmutter
may be deemed to have sole dispositive power are directly held as
follows:
41
<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of 8%
Holder Common Stock Preferred Stock
------ ------------ ---------------
<S> <C> <C>
Zib........................................ 9,256,000 --
The Laura and Isaac Perlmutter Foundation
Inc....................................... 250,000 --
Object Trading Corp........................ 33,500 3,562,710
Isaac Perlmutter........................... 10,000 --
</TABLE>
The sole stockholder of Zib, a Delaware corporation, is Isaac Perlmutter
T.A., a Florida trust (the "Perlmutter Trust"). Mr. Perlmutter is a trustee
and the sole beneficiary of the Perlmutter Trust, and may revoke it at any
time. Mr. Perlmutter is a director and the president of the Laura and Isaac
Perlmutter Foundation Inc., a Florida not-for-profit corporation. Mr.
Perlmutter is the sole stockholder of Object Trading Corp., a Delaware
corporation. Mr. Perlmutter may be deemed to possess (i) the power to vote
and dispose of the shares of Common Stock beneficially owned by Zib and
Object Trading Corp. and (ii) the power to direct the vote and disposition
of the shares of Common Stock beneficially owned by the Laura and Isaac
Perlmutter Foundation Inc.
(b) Except for the 13,257,822 shares over which Mr. Perlmutter may be
deemed to have sole dispositive power (which include shares of Common
Stock underlying 3,562,710 shares of 8% Preferred Stock), shares over
which Mr. Perlmutter may be deemed to have shared voting power (which
include shares of Common Stock underlying 12,358,929 shares of 8%
Preferred Stock) are beneficially owned by parties to the Stockholders'
Agreement which are unaffiliated with Mr. Perlmutter and it is only by
reason of Mr. Perlmutter's position as a party to the Stockholders'
Agreement that Mr. Perlmutter may be deemed to possess that shared voting
power.
(3) Shares over which Mr. Dickstein may be deemed to have sole voting and
dispositive power include 6,667 shares of Common Stock subject to stock
options granted pursuant to the Stock Incentive Plan which are
immediately exercisable. Mr. Dickstein is a party to the Stockholders'
Agreement. Shares over which Mr. Dickstein may be deemed to have shared
voting power are directly held as follows:
<TABLE>
<CAPTION>
Shares of Shares of 8%
Holder Common Stock Preferred Stock
------ ------------ ---------------
<S> <C> <C>
Dickstein & Co., L.P........................... 1,458,029 2,468,002
Dickstein Focus Fund L.P....................... 170,620 237,229
Dickstein International Limited................ 134,967 821,994
Mark Dickstein and Elyssa Dickstein, as trust-
ees of The Mark and Elyssa Dickstein Founda-
tion.......................................... -- 10,200
</TABLE>
(a) Dickstein & Co., L.P. is a Delaware limited partnership.
(b) Dickstein Focus Fund L.P. is a Delaware limited partnership.
(c) Dickstein International Limited is a limited-liability, open-end
investment fund incorporated as an international business company in
the Territory of the British Virgin Islands.
(d) The Mark and Elyssa Dickstein Foundation is a New York trust organized
to be exempt from federal income taxes under Section 501(c)(3) of the
Internal Revenue Code.
(e) Dickstein Partners Inc., a Delaware corporation, is the advisor to
Dickstein International Limited and is the general partner of Dickstein
Partners, L.P., a Delaware limited partnership which in turn is the
general partner of both Dickstein & Co., L.P. and Dickstein Focus Fund
L.P. By reason of his position as president and sole director of
Dickstein Partners Inc., Mr. Dickstein may be deemed to possess the
power to vote and dispose of the shares of Common Stock and 8%
Preferred Stock beneficially owned by Dickstein & Co., L.P., Dickstein
Focus Fund L.P. and Dickstein International Limited. By reason of his
position as a trustee of the Mark and Elyssa Dickstein Foundation, Mr.
Dickstein may be deemed to possess the power to direct the vote and
disposition of the shares of 8% Preferred Stock (and underlying Common
Stock) beneficially owned by the Mark and Elyssa Dickstein Foundation.
(f) Not included in the table are the shares of Common Stock that underlie
(i) 142,800 shares of 8% Preferred Stock directly held by Elyssa
Dickstein, Mark Dickstein's wife, and (ii) 51,000 shares of 8%
Preferred Stock directly held by Elyssa Dickstein, Jefferey Schwarz and
Alan Cooper as Trustees U/T/A/D 12/27/88, Mark Dickstein, Grantor (the
"Dickstein Trust"), a New York trust established by Mark Dickstein, as
Grantor, for the benefit of his children. Mark Dickstein has no
beneficial interest in the Dickstein Trust.
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<PAGE>
(4)(a) Shares over which The Chase Manhattan Corporation, a Delaware
corporation, may be deemed to have sole dispositive power are held
directly by The Chase Manhattan Bank, a New York corporation that is
wholly owned by The Chase Manhattan Corporation. The Chase Manhattan
Bank is a party to the Stockholders' Agreement.
(b) Except for the 2,112,440 shares over which The Chase Manhattan
Corporation may be deemed to have sole dispositive power (which include
shares of Common Stock underlying 792,746 shares of 8% Preferred Stock),
shares over which The Chase Manhattan Corporation may be deemed to have
shared voting power (which include shares of Common Stock underlying
12,358,929 shares of 8% Preferred Stock) are beneficially owned by
parties to the Stockholders' Agreement which are unaffiliated with The
Chase Manhattan Corporation and it is only by reason of The Chase
Manhattan Bank's position as a party to the Stockholders' Agreement that
The Chase Manhattan Corporation may be deemed to possess that shared
voting power.
(5) Morgan Stanley is a party to the Stockholders' Agreement. Except for the
4,565,821 shares over which Morgan Stanley has shared dispositive power
(which include shares of Common Stock underlying 2,210,247 shares of 8%
Preferred Stock), shares over which Morgan Stanley may be deemed to have
shared voting power (which include shares of Common Stock underlying
12,358,929 shares of 8% Preferred Stock) are beneficially owned by
parties to the Stockholders' Agreement which are unaffiliated with
Morgan Stanley and it is only by reason of Morgan Stanley's position as
a party to the Stockholders' Agreement that Morgan Stanley may be deemed
to possess that shared voting power.
(6) Whippoorwill may be deemed to be the beneficial owner of these shares
(which include shares of Common Stock underlying 2,104,952 shares of 8%
Preferred Stock) because it has discretionary authority with respect to
the investments of, and acts as agent for, the direct holders of the
shares. Whippoorwill disclaims any beneficial ownership of Common Stock
or 8% Preferred Stock except to the extent of Whippoorwill's pecuniary
interest in that stock, if any. Whippoorwill, as agent of and/or general
partner for certain institutions and funds, is a party to the
Stockholders' Agreement. Figures include 73,013 shares of Common Stock
(which include shares of Common Stock underlying 42,951 shares of 8%
Preferred Stock) that are not subject to the Stockholders' Agreement.
(7) Figures include 16,667 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable.
(8) Figures include 240,000 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable.
(9) Figures include 6,667 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable. Does not include shares held by various institutions and
funds with respect to whose investments Whippoorwill has discretionary
authority and for which Whippoorwill acts as agent. Mr. Greenhaus is the
president and managing director of Whippoorwill. Mr. Greenhaus disclaims
beneficial ownership of the shares of Common Stock and 8% Preferred
Stock owned by discretionary accounts managed by Whippoorwill as set
forth above except to the extent of his pecuniary interest in that
stock, if any.
(10) Figures include 6,667 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable.
(11) Figures include 75,000 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable.
(12) Figures include 25,000 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable.
(13) Mr. Ahearn is no longer employed by the Company. Figures include 25,000
shares of Common Stock subject to stock options granted pursuant to the
Stock Incentive Plan which are immediately exercisable.
(14) Figures include 678,336 shares of Common Stock subject to stock options
granted pursuant to the Stock Incentive Plan which are immediately
exercisable.
43
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For a description of certain relationships and related transactions
involving individuals who served during 1998 on the Board's Compensation and
Nominating Committee (or its predecessor), see "Item 11. Executive
Compensation--Compensation Committee Interlocks and Insider Participation."
Notes Offering
Morgan Stanley, a beneficial owner of more than 5% of the Company's Common
Stock, acted as a placement agent in the previously described Notes Offering,
which the Company completed on February 25, 1999. The Notes were offered only
(i) to qualified institutional buyers under Rule 144A of the Securities Act and
(ii) outside the United States in compliance with Regulation S. As a placement
agent, Morgan Stanley purchased the Notes from the Company at a discount. The
Company and certain of its subsidiaries, on one hand, and the placement agents
(including Morgan Stanley), on the other hand, agreed to indemnify each other
against certain liabilities in connection with the Notes Offering, including
liabilities under the Securities Act.
MEG License Arrangements
In connection with the formation of Toy Biz, Inc., MEG (a holder of more
than 5% of Toy Biz, Inc.'s common stock) granted Toy Biz, Inc. an exclusive,
perpetual and paid-up license to manufacture and distribute a broad range of
toys based upon the Marvel characters and properties in which MEG owned
copyrights, trademarks or trade names (the "Marvel License"). The Marvel
License covered all characters (including the associated copyrights and
trademarks) owned by MEG and disseminated under the Marvel Comics trademark.
The Marvel License restricted MEG, subject to Toy Biz, Inc.'s prior consent,
from manufacturing, using, distributing or advertising the licensed products
and from granting other licenses to use the Marvel characters in connection
with the licensed products. Upon the consummation of the Merger, the Marvel
License became an intercompany agreement.
Toy Biz, Inc. and MEG entered into an exclusive license agreement pursuant
to which MEG used the "Toy Biz" trademark on online services and electronic
networks, including the Internet. The license was limited to Marvel-related
products of Toy Biz, Inc. MEG paid Toy Biz, Inc. $500,000 for such license,
which is no longer in effect.
In 1995 and 1996, Toy Biz, Inc. also distributed certain products through a
wholly-owned subsidiary of MEG engaged in the distribution of products to
certain comic book retailers. During the years ended December 31, 1995 and
1996, Toy Biz, Inc.'s sales to that subsidiary totaled $1,616,000 and
$324,000.
MEG Services Agreement
In connection with Toy Biz, Inc.'s initial public offering, Toy Biz, Inc.
and MEG entered into a services agreement (the "Services Agreement") governing
the provision by MEG of services to Toy Biz, Inc. Under the Services
Agreement, upon request by Toy Biz, Inc. and acceptance by MEG, MEG provided
certain management, consulting and administrative services and certain
services purchased from third party providers, including legal and accounting
services. Toy Biz, Inc. was obligated to reimburse MEG for the costs of such
services. The Services Agreement automatically renewed for successive one-year
terms unless terminated upon 120 days' notice. Toy Biz, Inc. accrued for the
account of, or reimbursed MEG for, approximately $262,000 and $141,000 of
services for 1996 and 1997, respectively. The Services Agreement is no longer
in effect.
Other Agreements with Affiliates
On March 5, 1999, the Company engaged Morgan Stanley to provide financial
advice and assistance. In exchange for those services, the Company has agreed to
pay Morgan Stanley a fee of $1,750,000.
44
<PAGE>
Toy Biz, Inc. was a party to a license agreement entered into in September
1994 with The Coleman Company, Inc., an affiliate, at the time, of Toy Biz,
Inc., pursuant to which Toy Biz, Inc. licensed certain Coleman trademarks. The
license terminated during 1997.
Toy Biz, Inc. was a party to a license agreement entered into in July 1995
with Revlon Consumer Products Corporation, an affiliate, at the time, of Toy
Biz, Inc., pursuant to which Toy Biz, Inc. licensed certain Revlon Consumer
Products Corporation trademarks. The license terminated during 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents Filed with this Report
1. Financial Statements
See the accompanying Index to Financial Statements and Financial
Statement Schedule on page F-1.
2. Financial Statement Schedule
See the accompanying Index to Financial Statements and Financial
Statement Schedule on page F-1.
3. Exhibits
See the accompanying Exhibit Index appearing on page 46.
(b) Reports on Form 8-K. During the last quarter of 1998, the Company filed
the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated October 1, 1998, reporting Items 5
and 7.
2. Current Report on Form 8-K dated October 13, 1998, reporting Items 2
and 7.
3. Current Report on Form 8-K/A dated October 16, 1998, reporting Item 7.
4. Current Report on Form 8-K/A-2 dated November 25, 1998, reporting
Item 7 and containing the financial statements required by Item 7(a)
and the pro forma financial information required by Item 7(b) in
connection with the Company's acquisition of Marvel Entertainment
Group, Inc.
(c) Exhibits. See the Exhibit Index immediately below.
45
<PAGE>
EXHIBIT INDEX
Exhibit No.
-----------
2.1 Fourth Amended Joint Plan of Reorganization for Marvel
Entertainment Group, Inc. dated July 31, 1998 and filed with the
United States District Court for the District of Delaware on July
31, 1998, with attached exhibits. (Incorporated by reference to
Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated
October 13, 1998 and filed with the Securities and Exchange
Commission on October 14, 1998.)
2.2 Asset Purchase Agreement by and among Fleer Corp., Frank H. Fleer
Corp. and SkyBox International Inc. and Golden Cycle, LLC, dated
as of January 29, 1999.
3.1 Restated Certificate of Incorporation. (Incorporated by reference
to Exhibit 4.1 of the Registrant's Current Report on Form 8-K
dated October 13, 1998 and filed with the Securities and Exchange
Commission on October 14, 1998.)
3.2 Bylaws (as restated and amended).
4.1 Article V of the Restated Certificate of Incorporation (see
Exhibit 3.1, above), defining the rights of holders of Common
Stock.
4.2 Article VI of the Restated Certificate of Incorporation (see
Exhibit 3.1, above), defining the rights of holders of 8%
Preferred Stock.
4.3 Indenture, dated as of February 25, 1999, defining the rights of
holders of 12% senior notes due 2009.
4.4 Plan Warrant Agreement, dated as of October 1, 1998, between the
Registrant and American Stock Transfer & Trust Company, as warrant
agent. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated October 13, 1998 and
filed with the Securities and Exchange Commission on October 14,
1998.)
4.5 Class A Warrant Agreement, dated as of October 1, 1998, between
the Registrant and American Stock Transfer & Trust Company, as
warrant agent. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Current Report on Form 8-K dated October 13, 1998 and
filed with the Securities and Exchange Commission on October 14,
1998.)
4.6 Class B Warrant Agreement, dated as of October 1, 1998, between
the Registrant and American Stock Transfer & Trust Company, as
warrant agent. (Incorporated by reference to Exhibit 4.4 to the
Registrant's Current Report on Form 8-K dated October 13, 1998 and
filed with the Securities and Exchange Commission on October 14,
1998.)
4.7 Class C Warrant Agreement, dated as of October 1, 1998, between
the Registrant and American Stock Transfer & Trust Company, as
warrant agent. (Incorporated by reference to Exhibit 4.5 to the
Registrant's Current Report on Form 8-K dated October 13, 1998 and
filed with the Securities and Exchange Commission on October 14,
1998.)
46
<PAGE>
Exhibit No.
-----------
10.1 Stockholders' Agreement, dated as of October 1, 1998, by and among
the Registrant, Avi Arad, the Dickstein Entities (as defined
therein), the Perlmutter Entities (as defined therein), The
Chase Manhattan Bank, Morgan Stanley & Co. Incorporated, and
Whippoorwill Associates, Incorporated, as agent of and/or general
partner for certain accounts. (Incorporated by reference to
Exhibit 99.4 to the Registrant's Current Report on Form 8-K/A
dated and filed with the Securities and Exchange Commission on
October 16, 1998.)
10.2 Stock Purchase Agreement, dated as of October 1, 1998, by and
among the Registrant and Dickstein & Co., L.P., Dickstein Focus
Fund L.P., Dickstein International Limited, Elyssa Dickstein,
Jeffrey Schwarz and Alan Cooper as Trustees U/T/A/D 12/27/88,
Mark Dickstein, Grantor, Mark Dickstein and Elyssa Dickstein, as
Trustees of the Mark and Elyssa Dickstein Foundation, Elyssa
Dickstein, Object Trading Corp., and Whippoorwill Associates,
Incorporated. (Incorporated by reference to Exhibit 99.3 to the
Registrant's Current Report on Form 8-K/A dated and filed with the
Securities and Exchange Commission on October 16, 1998.)
10.3 Registration Rights Agreement, dated as of October 1, 1998, by
and among the Registrant, Dickstein & Co., L.P., Dickstein Focus
Fund L.P., Dickstein International Limited, Elyssa Dickstein,
Jeffrey Schwarz and Alan Cooper as Trustees U/T/A/D 12/27/88,
Mark Dickstein, Grantor, Mark Dickstein and Elyssa Dickstein, as
Trustees of the Mark and Elyssa Dickstein Foundation, Elyssa
Dickstein, Object Trading Corp., Whippoorwill/Marvel Obligations
Trust--1997, and Whippoorwill Associates, Incorporated.
(Incorporated by reference to Exhibit 99.5 to the Registrant's
Current Report on Form 8-K/A dated and filed with the Securities
and Exchange Commission on October 16, 1998.)
10.4 Registration Rights Agreement, dated as of December 8, 1998, by
and among the Registrant, Marvel Entertainment Group, Inc., Avi
Arad, Isaac Perlmutter, Isaac Perlmutter T.A., The Laura & Isaac
Perlmutter Foundation Inc., and Zib Inc.
10.5 Registration Rights Agreement, dated February 25, 1999, by and
among the Registrant, certain subsidiaries of the Registrant,
Morgan Stanley & Co. Incorporated and Warburg Dillon Read LLC.
10.6 Lease, dated as of July 1, 1986, by and between 387 P.A.S.
Enterprises and Cadence Industries Corporation (9th Floor).
(Incorporated by reference to Exhibit 10.7 to the Registration
Statement of Marvel Entertainment Group, Inc. on Form S-1, File No.
33-40574, dated May 14, 1991).
10.7 Lease Modification and Extension Agreement dated as of July 1,
1991, between 387 P.A.S. Enterprises and the Registrant (9th, 10th,
11th and 12th Floors). (Incorporated by reference to Exhibit 10.9
to the Annual Report on Form 10-K of Marvel Entertainment Group,
Inc. for the fiscal year ended December 31, 1991).
10.8 Lease, dated December 3, 1993, by and between 200 Fifth Avenue
Associates and the Registrant. (Incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form
S-1, File No. 33-87268.)
47
<PAGE>
Exhibit No.
-----------
10.9 Sublease, dated December 19, 1996, by and between Gruner & Jahr
USA Publishing and the Registrant. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.)
10.10 License Agreement, dated March 1, 1993, by and between the
Registrant and Gerber Products Company as amended by Amendment
thereto, dated April 5, 1995. (Incorporated by reference to
Exhibit 10.13 to the Registrant's Registration Statement on Form
S-1, File No. 33-87268 and Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1995.) (Confidential treatment has been requested for a portion
of this exhibit.)
10.11 Master License Agreement, dated as of April 30, 1993, between Avi
Arad & Associates and the Registrant. (Incorporated by reference
to Exhibit 10.21 to the Registrant's Registration Statement on
Form S-1, File No. 33-87268.)
10.12 Employment Agreement, dated as of January 1, 1998, by and between
Joseph M. Ahearn and the Registrant.*
10.13 Amendment to Employment Agreement, dated as of October 14, 1998,
by and between Joseph M. Ahearn and the Registrant.*
10.14 Employment Agreement, dated as of September 30, 1998, by and
between Avi Arad and the Registrant.*
10.15 Employment Agreement, dated as of November 11, 1998, by and
between Eric Ellenbogen and the Registrant.*
10.16 Employment Agreement by and between Alan Fine and the Registrant.
(Incorporated by reference to Exhibit 10.20 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996.)*
10.17 Employment Agreement, dated as of January 1, 1998, by and between
David J. Fremed and the Registrant. (Incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for
the period ended September 30, 1998.)*
10.18 Employment Letter, dated August 27, 1997, by and between William
H. Hardie, III and the Registrant.*
10.19 Amendment to Employment Letter, dated February 4, 1999, by and
between William H. Hardie, III and the Registrant.*
10.20 1998 Stock Incentive Plan. (Incorporated by reference to Annex A
of the Registrant's Information Statement on Schedule 14C, filed
with the Securities and Exchange Commission on December 30,
1998.)*
10.21 Amended and Restated Master Agreement, dated as of November 19,
1997, by and among the Registrant, certain secured creditors of
Marvel and certain secured creditors of Panini SpA and Amendments
1 and 2 thereto. (Incorporated by reference to Exhibit 10.26 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.)
10.22 Amended and Restated Proxy and Stock Option Agreement, dated as of
November 19, 1997, between the Registrant and Avi Arad
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Current Report on Form 8-K dated November 24, 1997).
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARVEL ENTERPRISES, INC.
/s/ Eric Ellenbogen
By: _________________________________
Eric Ellenbogen
President and Chief Executive
Officer
Date: March 24, 1999
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
William H. Hardie, III his true and lawful attorney-in-fact with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Report and to
cause the same to be filed, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
granting to said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing whatsoever requisite or desirable to be
done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorney-in-fact and agent, or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Eric Ellenbogen March 24, 1999
________________________ President, Chief Executive Officer and
Eric Ellenbogen Director (principal executive officer)
/s/ Robert S. Hull Senior Vice President and Chief Financial March 26, 1999
________________________ Officer (principal financial and accounting
Robert S. Hull officer)
/s/ Morton E. Handel Chairman of the Board of Directors March 26, 1999
________________________
Morton E. Handel
/s/ Avi Arad Director March 24, 1999
________________________
Avi Arad
/s/ Mark Dickstein Director March 25, 1999
________________________
Mark Dickstein
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Shelley F. Greenhaus Director March 25, 1999
________________________
Shelley F. Greenhaus
/s/ James F. Halpin Director March 24, 1999
________________________
James F. Halpin
/s/ Michael M. Lynton Director March 25, 1999
________________________
Michael M. Lynton
/s/ Lawrence Mittman Director March 29, 1999
________________________
Lawrence Mittman
/s/ Isaac Perlmutter Director March 24, 1999
________________________
Isaac Perlmutter
/s/ Rod Perth Director March 24, 1999
________________________
Rod Perth
/s/ Michael J. Petrick Director March 26, 1999
________________________
Michael J. Petrick
</TABLE>
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENTS SCHEDULE
<TABLE>
<CAPTION>
Marvel Enterprises, Inc. (f/k/a Toy Biz, Inc.)
- - ----------------------------------------------
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and December 31,
1998.................................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997, and 1998.................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1997, and 1998....................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997, and 1998.................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Financial Statement Schedule
Schedule II-Valuation and Qualifying Accounts............................ F-30
</TABLE>
All other schedules prescribed by the accounting regulations of the
Commission are not required or are inapplicable and therefore have been
omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of Marvel Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Marvel
Enterprises, Inc. (formerly Toy Biz, Inc.) and subsidiaries (the "Company") as
of December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated February 5, 1999,
except for Note 3, as to which the date is February 11, 1999, which report
contained an explanatory paragraph regarding the Company's ability to continue
as a going concern, the Company, as discussed in Note 1, has completed the
issuance of a $250 million notes offering and repaid all outstanding balances
under its Bridge Loan. Therefore, the conditions that raised substantial doubt
about whether the Company will continue as a going concern no longer exist.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Marvel
Enterprises, Inc. and subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
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
F-2
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
---------------- ----------------
(in thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 7,596 $ 43,691
Accounts receivable, net (Note 4)...... 50,395 50,312
Inventories, net (Note 4).............. 22,685 32,598
Assets held for resale (Note 3)........ 4,136 26,000
Income tax receivable (Note 10)........ 17,542 7,396
Deferred income taxes, net (Note 10)... 8,034 538
Deferred financing costs............... -- 8,281
Prepaid expenses and other............. 6,584 3,768
---------------- ----------------
Total current assets................. 116,972 172,584
Molds, tools and equipment, net (Note
4)..................................... 17,013 15,548
Product and package design costs, net
(Note 4)............................... 7,616 5,909
Goodwill and other intangibles, net
(Note 4)............................... 9,305 487,731
Other assets............................ -- 5,053
Deferred income taxes, net (Note 10).... -- 3,079
---------------- ----------------
Total assets......................... $ 150,906 $ 689,904
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 5,354 $ 7,294
Accrued expenses and other (Notes 4 and
10)................................... 25,571 70,672
Borrowings (Note 5).................... 12,000 200,000
Administrative claims payable (Note
13)................................... -- 19,914
Unsecured creditors payable (Note 1)... -- 8,096
---------------- ----------------
Total current liabilities............ 42,925 305,976
---------------- ----------------
Panini liability (Note 1)............... -- 27,000
Deferred income taxes (Note 10) ........ -- 924
---------------- ----------------
Total liabilities.................... 42,925 333,900
---------------- ----------------
Commitments and contingencies (Note 13)
8% cumulative convertible exchangable
preferred stock, $.01 par value,
75,000,000 shares authorized,
17,238,000 issued and outstanding,
liquidation preference $10 per share as
of December 31, 1998 .................. -- 172,380
---------------- ----------------
Stockholders' equity (Note 6)
Preferred stock, $.01 par value,
25,000,000 shares authorized, none
issued................................. -- --
Common stock, $.01 par value,
100,000,000 shares authorized,
27,746,127 issued and outstanding at
December 31, 1997 and 250,000,000
shares authorized, 40,846,127 issued
and 33,452,127 outstanding as of
December 31, 1998...................... 277 408
Additional paid-in capital.............. 70,578 215,035
Retained earnings....................... 37,126 1,136
---------------- ----------------
Total stockholders' equity before
treasury stock...................... 107,981 216,579
Treasury stock, 7,394,000 shares........ -- (32,955)
---------------- ----------------
Total stockholders' equity .......... 107,981 183,624
---------------- ----------------
Total liabilities, redeemable
convertible preferred stock and
stockholders' equity ............... $ 150,906 $ 689,904
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1997 1998
-------- --------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Net sales...................................... $221,624 $ 150,812 $232,076
Cost of sales.................................. 116,455 106,951 127,978
-------- --------- --------
Gross profit................................... 105,169 43,861 104,098
Operating expenses:
Selling, general and administrative.......... 61,876 72,081 97,135
Depreciation and amortization................ 15,674 20,548 19,332
Amortization of goodwill and other
intangibles................................. 404 520 7,091
-------- --------- --------
Total expenses............................. 77,954 93,149 123,558
-------- --------- --------
Operating income (loss)........................ 27,215 (49,288) (19,460)
Interest expense............................... (112) (776) (9,440)
Other income (expense), net.................... 708 414 676
-------- --------- --------
Income (loss) before income taxes............ 27,811 (49,650) (28,224)
Income tax expense (benefit) (Note 10)....... 11,124 (20,185) 4,386
-------- --------- --------
Net income (loss).......................... $ 16,687 $ (29,465) $(32,610)
-------- --------- --------
Less: preferred dividend requirement........... 105 71 3,380
-------- --------- --------
Net income (loss) attributable to Common
Stock....................................... $ 16,582 $ (29,536) $(35,990)
======== ========= ========
Basic and diluted net income (loss) per common
share......................................... $ 0.61 $ (1.06) $ (1.23)
Weighted average number of common and common
equivalent shares outstanding (in thousands).. 27,366 27,746 29,173
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------
Additional
Paid-In Retained Treasury
Shares Amount Capital Earnings Stock Total
------ ------ ---------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 27,020 $270 $ 61,158 $ 49,904 -- $111,332
Proceeds from secondary
offering............... 700 7 9,096 -- -- 9,103
Exercise of stock op-
tions.................. 23 -- 438 -- -- 438
Accretion of redeemable
preferred stock........ -- -- (105) -- -- (105)
Net income for 1996..... -- -- -- 16,687 -- 16,687
------ ---- -------- -------- -------- --------
Balance at December 31,
1996................... 27,743 277 70,587 66,591 -- 137,455
Exercise of stock op-
tions.................. 3 -- 62 -- -- 62
Accretion of redeemable
preferred stock........ -- -- (71) -- -- (71)
Net loss for 1997....... -- -- -- (29,465) -- (29,465)
------ ---- -------- -------- -------- --------
Balance at December 31,
1997................... 27,746 277 70,578 37,126 -- 107,981
Capital contribution
(Note 1)............... -- -- 1,500 -- -- 1,500
Capital transactions in
connection with
Acquisition--Note 1:
Issuance of common
stock................ 13,100 131 125,957 -- -- 126,088
Valuation of
warrants............. -- -- 17,000 -- -- 17,000
Acquisition of
treasury stock....... (7,394) -- -- -- (32,955) (32,955)
Preferred dividend de-
clared................. -- -- -- (3,380) -- (3,380)
Net loss for 1998....... -- -- -- (32,610) -- (32,610)
------ ---- -------- -------- -------- --------
Balance at December 31,
1998................... 33,452 $408 $215,035 $ 1,136 $(32,955) $183,624
====== ==== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1997 1998
-------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Net income (loss)............................... $ 16,687 $(29,465) $ (32,610)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 16,078 21,068 26,423
Deferred financing charges.................... -- -- 2,596
Deferred income taxes......................... (2,032) (1,321) 7,494
Changes in operating assets and liabilities:
Accounts receivable......................... (20,843) 45,076 13,183
Inventories................................. (3,740) (2,452) (7,317)
Income tax receivable....................... -- (17,542) 10,146
Prepaid expenses and other.................. (1,591) (581) 2,953
Deferred charges and other assets........... -- -- (4,918)
Accounts payable, accrued expenses and other
........................................... 1,407 (4,883) 24,034
Administrative claims payable............... (6,838) 2,851 (12,985)
-------- -------- ---------
Net cash (used in) provided by operating
activities..................................... (872) 12,751 28,999
-------- -------- ---------
Cash flow used in investing activities:
Acquisition of Marvel Entertainment Group,
Inc., net of cash received (Note 1).......... -- -- (257,865)
Purchases of molds, tools and equipment....... (15,352) (12,448) (10,702)
Expenditures for product and package design
costs........................................ (8,213) (5,169) (4,955)
Patents....................................... (283) (127) (1,668)
(Purchase) sale of Colorforms assets.......... -- (4,556) 2,786
-------- -------- ---------
Net cash used in investing activities......... (23,848) (22,300) (272,404)
-------- -------- ---------
Cash flow from financing activities:
Proceeds from bridge facility................. -- -- 200,000
Exercise of stock option...................... 438 62 --
Net borrowings (repayments) under credit
agreement.................................... -- 12,000 (12,000)
Redemption of Preferred Stock................. (1,440) (939) --
Proceeds from capital contribution............ -- -- 1,500
Proceeds from Preferred Stock offering........ -- -- 90,000
Proceeds from additional public offering...... 9,260 -- --
-------- -------- ---------
Net cash provided by financing activities..... 8,258 11,123 279,500
-------- -------- ---------
Net (decrease) increase in cash and cash
equivalents.................................. (16,462) 1,574 36,095
Cash and cash equivalents at beginning of
year......................................... 22,484 6,022 7,596
-------- -------- ---------
Cash and cash equivalents at end of year...... $ 6,022 $ 7,596 $ 43,691
======== ======== =========
Supplemental disclosure of cash flow
information:
Interest paid during the period............... $ 149 $ 820 $ 5,302
Net income taxes paid (recovered) during the
year......................................... 16,156 (476) (12,594)
Other non-cash transactions:
Preferred stock dividends..................... 105 71 3,380
Issuance of securities in connection with the
acquisition of Marvel Entertainment Group,
Inc., and treasury stock
(Note 1)..................................... -- -- 189,133
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. Description of Business and Basis of Presentation
The Company designs, markets and distributes boys', girls', preschool,
activity and electronic toys based on popular entertainment properties and
consumer brand names. The Company also designs, markets and distributes its
own line of proprietary toys. The Company's toy business is conducted both
domestically and internationally. Through its acquisition of MEG, one of the
world's most prominent character-based entertainment companies with a
proprietary library of over 3,500 characters, the Company has entered the
licensing and comic book publishing businesses domestically and
internationally.
The term the "Company" and the term "Marvel" each refer to Marvel
Enterprises, Inc., and its subsidiaries after the acquisition. The term "MEG"
refers to Marvel Entertainment Group, Inc., and its subsidiaries, prior to the
consummation of the acquisition, and its emergence from bankruptcy and the
term "Toy Biz, Inc." refers to the Company prior to the consummation of the
acquisition.
Toy Biz, Inc. was formed on April 30, 1993 pursuant to a Formation and
Contribution Agreement ("Formation Agreement"), entered into by a predecessor
company to Toy Biz, Inc. (the "Predecessor Company"), Mr. Isaac Perlmutter
(the sole stockholder of the Predecessor Company), MEG and Avi Arad ("Mr.
Arad"). The Predecessor Company had been MEG's largest toy licensee. The
Predecessor Company was incorporated in 1990, pursuant to an asset purchase
agreement with Charan Industries, Inc.
In accordance with the Formation Agreement, the Predecessor Company
contributed all of its and an affiliate's assets ($23,335,000) and certain
specified liabilities ($21,949,000) to Toy Biz, Inc. for 44% of Toy Biz,
Inc.'s capital stock. Such specified liabilities included approximately
$15,363,000 due to Mr. Perlmutter and other affiliated companies of the
Predecessor Company. A portion of the assumed liabilities due to Mr.
Perlmutter was paid in cash ($8,752,000) and the remainder of the assumed
liabilities due to Mr. Perlmutter was converted into a promissory note
($6,611,000). MEG made a capital contribution of $500,000 for 46% of Toy Biz,
Inc.'s capital stock and a loan, in the form of a note, of $8,507,000. In
addition, MEG granted Toy Biz, Inc. an exclusive, perpetual and paid up
license to design and distribute toys based on MEG characters. Pursuant to the
Formation Agreement, in exchange for the contribution to Toy Biz, Inc. of his
interests in certain license agreements with Toy Biz, Inc. and cash, Mr. Arad
received 10% of Toy Biz, Inc.'s capital stock. In addition, Toy Biz, Inc.
granted Mr. Arad the Arad Stock Option (the "Option") to acquire an additional
10% of Toy Biz, Inc.'s capital stock. Mr. Arad also agreed to enter into the
Arad Consulting Agreement and the Master License Agreement.
On October 1, 1998, pursuant to the Fourth Amended Joint Plan of
Reorganization proposed by the senior secured lenders of MEG and Toy Biz, Inc.
(the "Plan"), MEG became a wholly-owned subsidiary of Toy Biz, Inc. Toy Biz,
Inc. also changed its name to Marvel Enterprises, Inc. on that date. The
acquisition of MEG was accounted for using the purchase method of accounting.
The results of the acquired business have been included in the Company's
consolidated results of operations from October 1, 1998. The Plan was
confirmed on July 31, 1998 by the United States District Court for the
District of Delaware, which had been administering the MEG bankruptcy cases,
and was approved by the Company's stockholders at a meeting on September 11,
1998.
In accordance with the Plan, the Toy Biz, Inc. stockholders, other than
MEG, immediately after the Reorganization continued to own approximately 40%
of the outstanding common stock of the Company (assuming the conversion of all
of the shares of 8% Cumulative Convertible Exchangeable Preferred Securities
(the "8% Preferred Stock") issued by the Company pursuant to the Plan but not
assuming the exercise of any warrants issued pursuant to the Plan) and the
senior secured lenders of MEG received (i) approximately $231.8
F-7
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
million in cash and (ii) common and 8% Preferred Stock issued by the Company
which (assuming the conversion of all 8% Preferred Stock) represent
approximately 42% of the common stock of the Company. Investors purchased 9.0
million shares of 8% Preferred Stock that, represent approximately 18% of the
common stock of the Company (assuming the conversion of all 8% Preferred
Stock). Under the Plan, holders of allowed unsecured claims of MEG ("Unsecured
Creditors") will receive (i) up to $8.0 million in cash and (ii) between 1.0
million and 1.75 million warrants having a term of four years and entitling
the holders to purchase common stock of the Company at $17.25 per share. The
exact amount of cash and warrants to be distributed to the Unsecured Creditors
will be determined by reference to the aggregate amount of allowed unsecured
claims. In addition, Unsecured Creditors will receive (i) distributions from
any future recovery on certain litigation and (ii) a portion of the
Stockholder Warrants as described below. Finally, the Plan provides that three
other series of warrants (the "Stockholder Warrants") will be distributed to
the Unsecured Creditors, to former holders of shares of MEG common stock, to
holders of certain class securities litigation claims arising in connection
with the purchase and sale of MEG common stock and to LaSalle National Bank.
The Stockholder Warrants consist of (a) three-year warrants to purchase 4.0
million shares of common stock of the Company at $12.00 per share, (b) six-
month warrants to purchase 3.0 million shares of 8% Preferred Stock for $10.65
per share subject to increase based upon the date of issuance of the six-month
warrants and (c) four-year warrants to purchase 7.0 million shares of common
stock of the Company at $18.50 per share. The recipients of the Stockholder
Warrants will also be entitled to receive distributions from any future
recovery on certain litigation. Certain other cash distributions were also
provided for by the Plan in connection with settling certain of the disputes
arising out of MEG's bankruptcy.
In accordance with the Plan, two litigation trusts were formed on the
consummation date of the Plan. Each litigation trust is now the legal owner of
litigation claims that formerly belonged to MEG and its subsidiaries. The
primary purpose of one of the trusts (the "Avoidance Litigation Trust") is to
pursue bankruptcy avoidance claims. The primary purpose of the other trust
(the "MAFCO Litigation Trust") is to pursue certain litigation claims against
Ronald O. Perelman and various related entities and individuals. The Company
has agreed to lend up to $1.1 million to the Avoidance Litigation Trust and up
to $1.0 million to the MAFCO Litigation Trust, in each case on a revolving
basis to fund the trust's professional fees and expenses. Each litigation
trust is obligated to reimburse the Company for all sums advanced, with simple
interest at the rate of 10% per year. Net litigation proceeds of each trust
will be distributed to the trust's beneficiaries only after the trust has,
among other things, paid all sums owed to the Company, released the Company
from any further obligation to make loans to the trust, and established
reserves to satisfy indemnification claims. The Company is entitled to 65.1%
of net litigation proceeds from the Avoidance Litigation Trust. The Company is
not entitled to any net litigation proceeds from the MAFCO Litigation Trust.
The preliminary purchase price of MEG, including related fees and expenses,
net of liabilities assumed, was approximately $446.9 million which included
approximately $257.9 million in cash and the remainder in securities of the
Company as outlined above, net of shares of the Company owned by MEG and
reacquired in these transactions. Goodwill from the acquisition will be
amortized over 20 years.
F-8
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Based on a preliminary allocation of purchase price, the fair value of the
assets and liabilities acquired is summarized below.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Current assets............ $ 42,978
Noncurrent assets......... 4,971
Goodwill and other
intangible assets........ 483,874
Current liabilities....... (57,918)
Non-current liabilities... (27,000)
--------
$446,905
========
</TABLE>
In the preliminary allocation of the purchase price, Fleer/SkyBox
("Fleer"), MEG's subsidiaries engaged in the sale of sports and entertainment
trading cards, is presented as an asset held for sale. In January 1999, the
Company entered into an agreement to sell Fleer for $26.0 million in cash,
subject to post-closing adjustment, and the assumption of certain liabilities.
In addition, the Company does not currently intend to continue operating
Panini S.p.A. ("Panini"), MEG's Italian subsidiary engaged in the children's
activity sticker and adhesive paper business. Panini has a deficit in net
tangible assets of approximately $130.7 million as of December 31, 1998;
however, the Panini deficit in net tangible assets reflected in the
preliminary allocation of the purchase price ($27.0 million) is the maximum
amount of such deficit that the Company has guaranteed under the terms of the
Plan. The $27.0 million liability is presented as a long-term liability on the
Consolidated Balance Sheet as of December 31, 1998. The Company anticipates
disposing of Panini in 1999.
See Note 13 regarding contingencies related to, among other things, claims
by unsecured creditors of MEG and other matters.
Presented below are the unaudited pro forma results of the Company giving
effect to the acquisition of MEG as if it has occurred as of the beginning of
the periods presented:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------------
1997 1998
--------------- ---------------
(in millions, except per share)
<S> <C> <C>
Net sales............................... $220.3 $274.5
Operating loss.......................... (79.4) (33.9)
Net loss................................ (96.1) (81.0)
Basic and diluted loss per share........ (3.28) (2.82)
</TABLE>
The Company consummated the Plan and the Merger by utilizing interim
financing arrangements (the "Bridge Loan"). The Bridge Loan had a repayment
schedule of less than one year, causing a significant working capital
deficiency. In addition, the Company was not in compliance with certain
financial and other covenants of the Bridge Loan agreement. These conditions
raised substantial doubt about the Company's ability to continue as a going
concern. On February 25, 1999, the Company completed the issuance of a $250.0
million notes
F-9
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
offering ("Senior Notes") in a private placement exempt from registration
under the Securities Act of 1933, as amended ("the Act"). Net proceeds of
approximately $240 million were used to pay all outstanding balances under the
Bridge Loan and for working capital needs. Therefore, the conditions that
raised substantial doubt about whether the Company would continue as a going
concern no longer exist.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, except for Panini and Fleer (see Note 1). Upon
consolidation, all significant intercompany accounts and transactions are
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The principal areas of judgement relate to provisions for
returns, other sales allowances and doubtful accounts, the realizability of
inventories, goodwill and other intangible assets, and the impairment reserve
for minimum royalty guarantees and minimum advances, molds, tools and
equipment, and product and package design costs. Actual results could differ
from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Molds, Tools, and Equipment
Molds, tools and equipment are stated at cost less accumulated depreciation
and amortization. The Company owns the molds and tools used in production of
the Company's products by third-party manufacturers. At December 31, 1998,
certain of these costs related to products that were not yet in production or
were not yet being sold by the Company. For financial reporting purposes,
depreciation and amortization is computed by the straight-line method
generally over a three-year period (the estimated selling life of related
products) for molds and tooling costs and over the useful life for furniture
and fixtures and office equipment. On an ongoing basis the Company reviews the
lives and carrying value of molds and tools based on the sales and operating
results of the related products. If the facts and circumstances suggest a
change in useful lives or an impairment in the carrying value, the useful
lives are adjusted and unamortized costs are written off accordingly. Write-
offs, in excess of normal amortization, which are included in depreciation and
amortization on the accompanying Consolidated Statements of Operations for the
years ended December 31, 1996, 1997 and 1998 were approximately $364,000,
$2,174,000 and $1,418,000 respectively.
Product and Package Design Costs
The Company capitalizes costs related to product and package design when
such products are determined to be commercially acceptable. Product design
costs include costs relating to the preparation of precise detailed
F-10
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
mechanical drawings and the production of sculptings and other handcrafted
models from which molds and dies are made. Package design costs include costs
relating to art work, modeling and printing separations used in the production
of packaging. At December 31, 1998, certain of these costs related to products
that were not yet in production or were not yet being sold by the Company. For
financial reporting purposes, depreciation and amortization of product and
package design is computed by the straight-line method generally over a three-
year period (the estimated selling life of related products). On an ongoing
basis the Company reviews the useful lives and carrying value of product and
package design costs based on the sales and operating results of the related
products. If the facts and circumstances suggest a change in useful lives or
an impairment in the carrying value, the useful lives are adjusted and
unamortized costs are written off accordingly. Write-offs, in excess of normal
amortization, which are included in depreciation and amortization on the
accompanying Consolidated Statements of Operations, for the years ended
December 31, 1996, 1997 and 1998 were approximately $1,164,000, $1,230,000 and
$1,425,000 respectively.
Goodwill and Other Intangibles
Goodwill and other intangibles are stated at cost less accumulated
amortization. Goodwill is principally amortized over 20 years and other
intangibles are amortized over 3 to 10 years. For the years ended December 31,
1996, 1997 and 1998, amortization of goodwill and other intangibles were
approximately $404,000, $520,000 and $7,091,000, respectively.
Long-Lived Assets
In accordance with Financial Accounting Standards Board ("FASB") Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of", the Company records impairment losses on
long-lived assets used in operations, including intangible assets, when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less
than the carrying amounts of those assets.
Deferred Financing Costs
Deferred financing costs, which are mainly costs associated with the
Company's Bridge Facility, are amortized over the term of the related
agreements.
Research and Development
Research and development ("R&D") costs are charged to operations as
incurred. For the years ended December 31, 1996, 1997 and 1998, R&D expenses
were $5,298,000, $4,599,000 and $4,498,000, respectively.
Revenue Recognition
Sales are recorded upon shipment of merchandise and a provision for future
returns and other sales allowances is established based upon historical
experience and management estimates. In certain cases, sales made on a
returnable basis are recorded net of provisions for estimated returns. These
estimates are revised as necessary to reflect actual experience and market
conditions.
Subscription revenues generally are collected in advance for a one year
subscription and are recognized as income on a pro rata basis over the
subscription period.
Income from distribution fees, licensing and sub-licensing of characters
owned by the Company are recorded in accordance with the distribution
agreement and at the time characters are available to the licensee
F-11
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
and collection is reasonably assured. Receivables from licensees due more than
one year beyond the balance sheet date are discounted to their present value.
For the years ended December 31, 1996, 1997 and 1998, toy distribution fees
and sub-licensing revenues were $13,637,000, $3,265,000 and $1,250,000,
respectively.
Advertising Costs
Advertising production costs are expensed when the advertisement is first
run. Media advertising costs are expensed on the projected unit of sales
method during interim periods. For the years ended December 31, 1996, 1997 and
1998, advertising expenses were $25,471,000, $27,910,000 and $31,762,000,
respectively. At December 31, 1997 and 1998, the Company had incurred $420,000
and $469,000, respectively, of prepaid advertising costs, principally related
to production of advertisement that will be first run in fiscal 1998 and 1999,
respectively.
Royalties
Minimum guaranteed royalties, as well as royalties in excess of minimum
guarantees, are expensed based on sales of related products. The realizability
of advanced minimum guarantees paid is evaluated by the Company based on the
projected sales of the related products.
Income Taxes
The Company uses the liability method of accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes". Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and the tax bases
of assets and liabilities and are measured using tax rates and laws that are
scheduled to be in effect when the differences are scheduled to reverse.
Income tax expense includes U.S. and foreign income taxes, including U.S.
Federal taxes on undistributed earnings of foreign subsidiaries to the extent
that such earnings are planned to be remitted.
Foreign Currency Translation
The financial position and results of operations of the Company's Hong Kong
and Mexican subsidiaries are measured using the U.S. dollar as the functional
currency. Assets and liabilities are translated at the exchange rate in effect
at year end. Income statement accounts and cash flows are translated at the
average rate of exchange prevailing during the period. Translation
adjustments, which were not material, arising from the use of differing
exchange rates are included in the results of operations.
Fair Value of Financial Instruments
The fair value of all debt instruments approximate their carry value due to
their short term maturity and variable interest rates.
Concentration of Risk
A large number of the Company's toy products are manufactured in China,
which subjects the Company to risks of currency exchange fluctuations,
transportation delays and interruptions, and political and economic
disruptions. The Company's ability to obtain products from its Chinese
manufacturers is dependant 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
F-12
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
favored nation" status would increase the cost of importing products from
China significantly, which could have a material adverse effect on the
Company.
Marvel distributes its comic books to the direct market through the only major
comic book distributor. Termination of this distribution agreement could
significantly disrupt publishing operations.
See Note 8 regarding major toy customers.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128.
Earnings Per Share ("Statement 128"). Statement 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Net income (loss) per common share
is computed by dividing net income (loss), less the amount applicable to
preferred dividends, by the weighted average common shares outstanding during
the period. All income (loss) per share amounts for all periods have been
presented and where appropriate, restated to conform to Statement 128
requirements.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 ("SFAS 130") Reporting Comprehensive Income. The Company's adoption of
SFAS 130 had no effect on the Company as the Company does not have any
comprehensive income items.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted beginning in fiscal 2000. The statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings
or recognized in other comprehensive income until the hedged item is
recognized in earnings. Management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
3. Assets Held for Resale
Shortly after the acquisition of MEG, the Company concluded that Fleer did
not fit the Company's long-term strategy and the Company decided to dispose of
this operation. On February 11, 1999, the Company sold substantially all of
Fleer's assets for approximately $26.0 million in cash, subject to post-
closing adjustments and assumptions of certain liabilities. $15.0 million of
the proceeds were utilized to repay the Bridge Facility (see Note 5). The
Company remains liable under certain contracts of the Fleer business and have
been indemnified against such liabilities by the purchase of such business.
The Company does not currently intend to continue operating the Panini
business. The Company has recorded a liability equal to its guarantee of
Panini's debt.
On March 25, 1997, the Company acquired all of the assets of Colorforms
Inc. ("Colorforms"). The purchase price was approximately $5.0 million,
excluding fees and expenses, consisting of approximately $2.9 million in cash
paid at the closing and the assumption of approximately $2.1 million of
accounts payable and
F-13
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
accrued liabilities at the closing date. The Company utilized cash available
under its Chase Credit Facility (see note 5) to finance the acquisition. The
transaction was accounted for as a purchase. The results of Colorforms are
included in the Company's consolidated financial statements from the date of
acquisition.
During 1997, the Company concluded that Colorforms did not fit the
Company's long-term strategy and the Company decided to dispose of this
operation. On January 30, 1998, the Company sold Colorforms for approximately
$4.35 million, of which $3.0 million was paid in cash with a promissory note
representing the remainder of $1.35 million due in August 1998 through May
1999. As of December 31, 1997, assets held for sale are $4.1 million.
F-14
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
4. Details of Certain Balance Sheet Accounts
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
------- --------
(in thousands)
<S> <C> <C>
Accounts receivable, net, consists of the following:
Accounts receivable....................................... $80,212 $ 75,235
Less allowances for:
Doubtful accounts........................................ (430) (3,608)
Advertising, markdowns, returns, volume discounts and
other................................................... (29,387) (21,315)
------- --------
Total.................................................. $50,395 $ 50,312
======= ========
Inventories, net, consist of the following:
Toys:
Finished goods........................................... $17,518 $ 24,685
Component parts, raw materials and work-in-process....... 5,167 3,977
------- --------
Total Toys............................................. 22,685 28,662
Publishing:
Finished goods........................................... -- 754
Editorial and raw materials.............................. -- 3,182
------- --------
Total publishing....................................... 3,936
------- --------
Total.................................................. $22,685 $ 32,598
======= ========
Molds, tools and equipment, net, consists of the following:
Molds, tools and equipment................................ $26,873 $ 21,465
Office equipment and other................................ 7,539 17,255
Less accumulated depreciation and amortization............ (17,399) (23,172)
------- --------
Total.................................................. $17,013 $ 15,548
======= ========
Product and package design costs, net, consists of the
following:
Product design costs...................................... $11,113 $ 8,125
Package design costs...................................... 4,404 3,567
Less accumulated amortization............................. (7,901) (5,783)
------- --------
Total.................................................. $ 7,616 $ 5,909
======= ========
Goodwill and other intangibles, net, consists of the
following:
Goodwill (Note 1)......................................... $ 9,453 $492,424
Patents and other intangibles............................. 818 3,726
Less accumulated amortization............................. (966) (8,419)
------- --------
Total.................................................. $ 9,305 $487,731
======= ========
Accrued expenses and other consists of the following:
Accrued advertising costs................................. $11,544 $ 8,183
Accrued royalties......................................... 2,228 9,584
Inventory purchases....................................... 4,909 7,389
Deferred financing costs.................................. -- 4,000
Income taxes payable...................................... 3,495 4,709
Deferred income taxes payable............................. 540 2,693
Litigation Trust accrual.................................. -- 2,100
Other accrued expenses.................................... 2,855 32,014
------- --------
Total.................................................. $25,571 $ 70,672
======= ========
</TABLE>
F-15
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
5. Debt Financing
To partially finance the acquisition of MEG, the Company obtained a $200.0
million loan (the "Bridge Facility") from UBS AG, Stamford Branch ("UBS AG").
The Bridge Facility bore interest at either the bank's base rate (defined as
the higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds
Rate) plus 5.50% or at the Eurodollar rate plus 6.50%. Both margins increased
by 0.50% on April 30, 1999 and by an additional 0.50% on the last day of each
three-month period thereafter. The Company incurred a commitment fee for the
Bridge Facility upon signing and was required to pay an additional
continuation fee of 2% if the Company had not refinanced the facility on or
prior to April 30, 1999. The Bridge Facility was required to be repaid by
September 27, 1999.
On September 28, 1998, the Company and UBS AG entered an agreement for a
$50.0 million Revolving Credit Facility ("UBS Credit Facility"). The UBS
Credit Facility bore interest at either the bank's base rate (defined as the
higher of the prime rate or the sum of 1/2 of 1% plus the Federal Funds Rate)
plus a margin ranging from 0.75% to 1.25% depending on the Company's financial
performance or at the Eurodollar rate plus a margin ranging from 1.75% to
2.25% depending on the Company's financial performance. The UBS Credit
Facility required the Company to pay a commitment fee of 0.50% per annum on
the average daily unused portion of the facility. There were no borrowings
under the UBS Credit Facility. The Company had approximately $1.6 million in
letters of credit outstanding as of December 31, 1998, which reduced the
available amount under the UBS Credit Facility.
The Bridge Facility and the UBS Credit Facility were secured by all of the
Company's assets (other than Panini) and contained various financial
covenants, as well as restrictions on new indebtedness, acquisitions and
similar investments, the sale or transfer of assets, capital expenditures,
restricted payments, payment of dividends, issuing guarantees and creating
liens. In addition, the Company could not pay cash dividends as long as the
Bridge Loan was outstanding. The UBS Credit Facility also required an annual
reduction of outstanding borrowings to zero for a period of at least thirty
consecutive calendar days from October 1, 1998 to December 31, 1999 and during
each fiscal year thereafter.
The Company was not in compliance with certain of the financial and other
covenants of the Bridge Facility and UBS Credit Facility. On February 25,
1999, the Company completed the issuance of a $250.0 million notes ("Senior
Notes") offering in a private placement exempt from registration under the
Act. Net proceeds of approximately $240 million were used to pay all
outstanding balances under the Bridge Loan and for working capital needs. The
$250 million Senior Notes are due June 15, 2009 and bear interest at 12% per
annum. The Senior Notes may be redeemed beginning June 15, 2004 for a
redemption price of 106% of the principal amount, plus accrued interest. The
redemption price decreases 2% each year after 2004 and will be 100% of the
principal amount, plus accrued interest, beginning on June 15, 2007. In
addition, 35% of the Senior Notes may, under certain circumstances, be
redeemed before June 15, 2002 at 112% of the principal amount, plus accrued
interest. Principal and interest on the Senior Notes are guaranteed on a
senior basis jointly and severally by each of the Company's domestic
subsidiaries. The Company will offer to exchange the Senior Notes which are
not registered under the Act for registered notes having substantially the
same terms. If the Company fails to comply with this requirement, the interest
rate on the Senior Notes will increase .5% per annum until such time as the
Senior Notes are generally freely transferable.
In the first quarter of 1999, in connection with the repayment of the
Bridge Facility, the Company will record an extraordinary charge of
approximately $1.8 million for the write-off of Bridge Facility deferred
financing costs.
F-16
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Prior to October 1, 1998, the Company had a revolving line of credit (the
"Chase Credit Facility") with a syndicate of banks for which The Chase
Manhattan Bank served as administrative agent. The Chase Credit Facility
provided that the Company could borrow an aggregate amount up to $29.0
million, subject to certain borrowing base limitations based upon the level of
the Company's receivables and inventory. This facility was terminated at the
closing of the MEG acquisition and replaced with the UBS Credit Facility.
The interest rate for borrowing as of December 31, 1997 and 1998 was 8.50%
and 12.10%, respectively and the weighted average interest rate for 1997 and
1998 was 8.44% and 11.31%, respectively. The maximum amounts outstanding
during 1997 and 1998 were $12.0 million and $200.0 million, respectively.
The interest expense, including amortization of Bridge Facility commitment
fees and other costs in 1998, for the years ended December 31, 1996, 1997 and
1998 were $112,000, $776,000 and $9,440,000, respectively.
6. Stockholders' Equity
On September 11, 1998, the Company's stockholders approved changes in the
Company's capital structure in connection with the approval of the Plan. These
changes eliminated the Class B Common Stock, authorized an additional 150.0
million shares of common stock (for a maximum authorized amount of 250.0
million shares) and authorized 100.0 million shares of preferred stock,
including 75.0 million shares of 8% Preferred Stock and 25.0 million shares of
preferred stock with a $.01 par value.
The 8% Preferred Stock is convertible into 1.039 fully paid and non-
assessable shares of common stock of the Company. The Company is required to
redeem all outstanding shares of the 8% Preferred Stock on October 1, 2011 at
$10.00 per share plus all accrued and unpaid dividends. The 8% Preferred Stock
generally votes together with the common stock on all matters. The Company has
the option to pay the dividend in cash or additional 8% Preferred Stock, but
cannot pay cash dividends on its 8% Preferred Stock as long as the Bridge
Facility is outstanding. On January 4, 1999, the Company issued 338,000 shares
of 8% Preferred Stock in payment of dividends declared and payable to
stockholders of record at December 31, 1998. These shares are shown as
outstanding at December 31, 1998.
The Company issued the following securities in accordance with the Plan:
(a) 7.9 million shares of 8% Preferred Stock to MEG fixed senior secured
lenders, (b) 9.0 million shares of 8% Preferred Stock to new investors at
$10.00 per share, (c) 13.1 million shares of common stock to the MEG fixed
senior secured lenders, (d) four-year warrants to purchase up to 1.75 million
shares of common stock at $17.25 per share, (e) three-year warrants to
purchase 4.0 million shares of common stock at $12.00 per share, (f) six-month
warrants to purchase 3.0 million shares of preferred stock for $10.65 per
share subject to increase based upon the date of issuance of the six-month
warrants, and (g) four-year warrants to purchase 7.0 million shares of common
stock at $18.50 per share. (See Note 1).
The Company has reserved 3.0 million shares of 8% Preferred Stock for
issuance upon exercise of warrants. In addition, the Company has reserved 39.4
million shares of common stock for issuance on conversion of the 8% Preferred
Stock, and exercise of warrants and stock options.
In connection with the Plan, the Company received a $1.5 million capital
contribution from an affiliate of Mr. Perlmutter and Mr. Arad. Mr. Perlmutter
and Mr. Arad received no additional equity for such contribution.
F-17
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
7. Stock Option Plans
Under the terms of the Company's 1998 Stock Incentive Plan (the "Stock
Incentive Plan"), incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, performance units and performance
shares may be granted to officers, employees, consultants and directors of the
Company and its subsidiaries from time to time. In November 1998, the Company
authorized a maximum aggregate number of shares of Common Stock as to which
options and rights may be granted under the Stock Incentive Plan of 6.0
million shares, including options described below. All options granted and
outstanding under the Company's previous stock incentive plan (the "1995 Stock
Option Plan") and all previous stock option plans of MEG were canceled at or
prior to the consummation of the Plan on October 1, 1998.
Information with respect to options under the stock option plans are as
follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Option Price per Share Price
--------- ---------------------- --------
<S> <C> <C> <C>
Outstanding at December 31, 1995... 995,602 $15.00-$22.625
Exercised.......................... (22,664) $18.000
Canceled........................... (47,303) $18.119
Granted............................ 195,250 $17.111
---------
Outstanding at December 31, 1996... 1,120,885 $15.00-$22.625
Canceled........................... (484,666) $18.115
Exercised.......................... (3,333) $18.000
Granted............................ -- $ --
---------
Outstanding at December 31, 1997... 632,886 $15.00-$22.625
Canceled........................... (632,886) $17.916
Exercised.......................... -- --
Granted (under New Stock Incentive
Plan)............................. 3,946,000 $ 6.05
---------
Outstanding at December 31, 1998... 3,946,000 $ 5.875-$ 6.25
=========
</TABLE>
Options granted under the Stock Incentive Plan vest generally in four equal
installments beginning with the date of grant. Of the outstanding options at
December 31, 1998, options for 1,004,000 shares became exercisable on January
20, 1999 and 2,054,000 shares were available for future grants of options and
rights. At December 31, 1998, the weighted average remaining contractual life
of the options outstanding is 9.92 years.
The Company accounts for its stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related Interpretations. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying
stock on date of grant, no compensation expense is recognized. In 1996, the
Company elected to follow the disclosure-only provisions under FASB Statement
No. 123, "Accounting for Stock-Based Compensation," ("FAS 123"). For the
purposes of FAS 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1997 1998
------------------------ ------------
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss), as reported......... $ 16,687 $ (29,465) $ (32,610)
Pro forma net income (loss)............ 15,195 (29,816) (35,679)
Pro forma net income (loss) per share
attributable to Common Stock--basic
and diluted........................... $ 0.55 $ (1.08) $ (1.34)
=========== ============ ============
</TABLE>
F-18
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The fair value for each option grant under the stock option plans was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for the various grants made during
1995 and 1996: risk free interest rates ranging from 5.26% to 7.19%; no
dividend yield; expected volatility of .354; and expected lives of three years
to five years. The weighted average assumptions for the 1998 grants are: 6.0%
interest rate; no dividend yield; expected volatility of .567; and expected
life of 3 years. The option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the option valuation model requires
the input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock
options have characteristics significantly different from those traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate in management's opinion, the
existing model does not necessarily provide a reliable single measure of the
fair value of its employee stock options.
The effects of applying FAS 123 for providing pro forma disclosures are not
likely to be representative of the effects on reported net income in future
years.
8. Sales to Major Customers and International Operations
The Company primarily sells its merchandise to major retailers, principally
throughout the United States. Credit is extended based on an evaluation of the
customer's financial condition, and, generally, collateral is not required.
Credit losses are provided for in the financial statements and consistently
were within management's expectation. In 1996 and 1997, the Marvel bankruptcy
and concerns among retailers about the future of the Marvel brand caused
customers to claim higher than expected return and other sales allowances.
During the year ended December 31, 1996, two customers accounted for
approximately 23% and 18% of total net sales. During the year ended December
31, 1997, three customers accounted for approximately 22%, 15% and 12% of
total net sales. During the year ended December 31, 1998, three customers
accounted for approximately 23%, 15% and 10% of total net toy sales.
The Company's Hong Kong subsidiary supervises the manufacturing of the
Company's products in China and sells such products internationally. All sales
by the Company's Hong Kong subsidiary are made F.O.B. Hong Kong against
letters of credit. During the years ended December 31, 1996, 1997 and 1998,
international sales were approximately 20%, 22%, and 15%, respectively, of
total net sales. During the years ended December 31, 1996, 1997 and 1998, the
Hong Kong operations reported operating income of approximately $18,880,000,
$5,868,000 and $4,224,000 and income before income taxes of $19,079,000,
$6,102,000 and $4,574,000, respectively. At December 31, 1997 and 1998, the
Company had assets in Hong Kong of approximately $28,660,000 and $29,966,000,
respectively. The Hong Kong subsidiary represented $26,670,000 and
$30,489,000, respectively, of the Company's consolidated retained earnings
during the years ended December 31, 1997 and 1998.
9. Restructuring and Other Unusual Costs
In connection with the consummation of the Plan (See Note 1), the Company
reviewed its relationships with its foreign distributors, as well as the
Company's relationship with certain suppliers, for business conflicts. As part
of integrating MEG's operations with those of the Company, the Company plans
on rationalizing its international licensing and product distribution
relationships. In addition, certain products that were at various stages of
design and marketing are being discontinued and written-off because of
business conflicts that arose out of the acquisition of MEG.
F-19
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
As a result of the above matters, the Company has recorded allowances and
unusual charges of approximately $16.8 million for the year ended December 31,
1998, which relate to impairment of assets, severance costs and the settlement
of litigation that arose in prior years regarding a licensing agreement. These
costs are reflected in the following captions in the statement of operations.
(in thousands)
Net sales
(allowances)... $ 2,925
Cost of sales... 1,193
Selling general
and
administrative.. 11,676
Depreciation and
amortization... 1,032
--------------
$ 16,826
==============
Cash charges.... $ 3,400
Non-cash
charges........ $ 13,426
--------------
$ 16,826
==============
Of these costs, approximately $14.9 million and $1.9 million were charged
to the third and fourth quarters, respectively, of fiscal 1998. At December
31, 1998, $1.4 million of the cash charges remain unpaid. The Company expects
to pay the remaining cash charges under contractual obligations extending to
2000.
10. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1996 1997 1998
------- -------- -------
(in thousands)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 8,474 $(19,196) $(6,189)
State............................................ 1,943 (191) 410
Foreign.......................................... 2,739 523 824
------- -------- -------
$13,156 $(18,864) $(4,955)
Deferred:
Federal.......................................... $(1,586) $ 1,287 $ 6,025
State............................................ (446) (2,608) 3,316
------- -------- -------
(2,032) (1,321) 9,341
------- -------- -------
Income tax expense (benefit) ...................... $11,124 $(20,185) $ 4,386
======= ======== =======
</TABLE>
F-20
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The differences between statutory Federal income tax rate and the effective
tax rate are attributable to the following:
<TABLE>
<CAPTION>
Years Ended
December 31,
--------------------
1996 1997 1998
---- ----- ------
<S> <C> <C> <C>
Federal income tax provision computed at the statutory
rate................................................... 35.0% (35.0)% (35.0%)
State taxes, net of Federal income tax effect........... 5.0% (5.7)% (4.7%)
Non-deductible amortization expense..................... -- -- 7.9%
Increase in valuation allowance......................... -- -- 48.6%
Other................................................... -- -- (1.3%)
---- ----- ------
Total provision for income taxes........................ 40.0% (40.7)% 15.5%
==== ===== ======
</TABLE>
For financial statement purposes, the Company records income taxes in
accordance with FAS109 using a liability approach for financial accounting and
reporting which results in the recognition and measurement of deferred tax
assets based on the likelihood of realization of tax benefits in future years.
Deferred taxes result from temporary differences in the recognition of income
and expenses for financial and income tax reporting purposes and differences
between the fair value assets acquired in business combinations accounted for
as purchases and their tax bases. The approximate effect of temporary
differences that gave rise to deferred tax balances were as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable ..................................... $1,762 $ 4,573
Inventory................................................ 2,447 6,623
Sales returns reserves................................... 955 4,505
Employment reserves...................................... (80) 3,999
Restructuring reserves................................... -- 589
Reserve related to foreign investments................... -- 2,373
Other reserves........................................... -- 1,038
Net operating loss carryforwards......................... 2,820 26,847
Tax credit carryforwards................................. -- 657
Other.................................................... 130 3,759
------ -------
Total gross deferred tax assets.......................... 8,034 54,963
Less valuation allowance................................. -- (51,346)
------ -------
Net deferred tax assets.................................. 8,034 3,617
------ -------
Deferred tax liabilities:
Depreciation/amortization ............................... 540 636
Licensing, net........................................... -- 2,981
------ -------
Total gross deferred tax liabilities..................... 540 3,617
------ -------
Net deferred tax asset (liability)......................... $7,494 $ --
====== =======
</TABLE>
F-21
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
During 1998, the Company recorded a valuation allowance against its
deferred tax assets as it was not assured that such assets would be realized
in the future. The total valuation allowance for 1998 includes $38,141,000
which, if realized, will be accounted for as a reduction of goodwill.
At December 31, 1998, the Company expects to have a Federal net operating
loss carryforward of approximately $40,000,000. This loss carryforward will
expire in years 2008 through 2018. This $40,000,000 loss is subject to the
separate return years limitation (commonly referred to as "SRLY") and a
Section 382 limitation. Any loss realized will be accounted for as a reduction
of goodwill. Additionally, the Company expects to have a state and local net
operating loss carryforward of approximately $103,000,000. The state and local
loss carryforward will expire in various jurisdictions in years 1999 through
2018. This loss carryforward is generally subject to the Section 382
limitation but not the SRLY limitation. Benefit was not provided for either
the Federal or state and local net operating loss carryforwards at December
31, 1998.
11. Quarterly Financial Data (unaudited)
Summarized quarterly financial information for the years ended December 31,
1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
------------------------------------------ -----------------------------------------
Quarter Ended March 31 June 30 September 30 December 31 March 31 June 30 September 30 December 31
------------- -------- ------- ------------ ----------- -------- ------- ------------ -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $34,414 $34,452 $ 40,765 $ 41,181 $42,641 $48,675 $ 65,045 $ 75,715
Gross profit............ 14,513 12,195 10,245 6,908 19,408 22,895 26,300 35,495
Operating income
(loss)................. 765 (8,676) (18,505) (22,872) 1,882 3,607 (11,969) (12,980)
Net income (loss)....... 475 (5,266) (11,219) (13,455) 1,076 2,106 (7,223) (28,569)
Preferred divided
requirement............ 23 24 24 -- -- -- -- 3,380
Basic and dilutive net
income (loss) per
common share........... $ 0.02 $ (0.19) $ (0.41) $ (0.48) $ 0.04 $ 0.08 ($ 0.26) $ (0.96)
</TABLE>
The income (loss) per common share computation for each quarter and the
year are separate calculations. Accordingly, the sum of the quarterly income
(loss) per common share amounts may not equal the income (loss) per common
share for the year.
The fourth quarter of 1997 includes pretax adjustments of $7,762,000
related to year end adjustments which were not previously estimable. The
Company believes most of these adjustments relate to the MEG bankruptcy and
concerns among retailers about the future of the Marvel brand. See Note 9 for
unusual charges in the third and fourth quarters of 1998.
12. Related Party Transactions
Mr. Perlmutter indirectly purchased approximately $34.9 million of the 8%
Preferred Stock in connection with the Plan. See Note 1.
Prior to the Company's acquisition of MEG on October 1, 1998 (see Note 1),
MEG provided support to the Company relating to licensing agreements,
promotion, legal and financial matters. The cost for these support services
has been included in selling, general and administrative expenses, and
amounted to $262,000 and $141,000 for the years ended December 31, 1996 and
1997. The Company did not receive any services from MEG in 1998. At December
31, 1997, the Company had a receivable from MEG of $94,000.
The Company entered into an exclusive license agreement pursuant to which
MEG could use the Toy Biz trademark on online services and electronic
networks, including the Internet. The license was limited to Marvel-
F-22
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
related products of the Company. MEG paid the Company $500,000 in 1996 for
such license. The Company sold merchandise totaling $324,000 to a subsidiary
of MEG during the year ended December 31, 1996. Related receivables of
$207,000 at December 31, 1996 were subsequently collected.
An affiliate of the Company, which is wholly-owned by Mr. Perlmutter, acts
as the Company's media consultant in placing the Company's advertising and, in
connection therewith, receives certain fees and commissions based on the cost
of the placement of such advertising. During the years ended December 31,
1996, 1997 and 1998, the Company paid fees and commissions to the affiliate
totaling approximately $965,000, $1,274,000 and $1,147,000, respectively,
relating to such advertisements.
The Company accrued royalties to Mr. Arad for toys he invented or designed
of $1,848,000, $3,624,000 and $4,254,000 during the years ended December 31,
1996, 1997 and 1998, respectively. At December 31, 1996, the Company had a
receivable from Mr. Arad for $505,000 related to reimbursement of expenses
which was subsequently collected. At December 31, 1997 and 1998, the Company
had an accrual to Mr. Arad of $197,000 and $396,000, respectively, for unpaid
royalties.
The Company shares office space and certain general and administrative
costs with affiliated entities. Rent received from affiliates for the years
ended December 31, 1996, 1997 and 1998 was $109,000, $116,000 and $105,000,
respectively. While certain costs are not allocated among the entities, the
Company believes that it bears its proportionate share of these costs.
13. Commitments and Contingencies
Leases: The Company is a party to various noncancellable operating leases
involving office and warehouse space expiring on various dates from November
18, 1999 through April 30, 2004. The leases are subject to escalations based
on cost of living adjustments and tax allocations. Minimum future obligations
on these leases are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999.......................................................... $ 2,530
2000.......................................................... 2,284
2001.......................................................... 1,218
2002.......................................................... 283
2003.......................................................... 151
Thereafter.................................................... 50
-------
$ 6,516
=======
</TABLE>
Rent expense amounted to approximately $788,000, $1,220,000, and $1,060,000
for the years ended December 31, 1996, 1997 and 1998, respectively.
The Company is a party to various royalty agreements with future guaranteed
royalty payments through 2001. Such minimum future obligations are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999.......................................................... $1,822
2000.......................................................... 1,570
2001.......................................................... 1,190
------
$4,582
======
</TABLE>
F-23
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
The Company has recorded approximately $8,124,000 as a net receivable for
minimum guaranteed royalties as of December 31, 1998. The portion receivable
after one year from the balance sheet date is included in other assets. The
minimum guaranteed royalties receivable are due as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999.......................................................... $ 5,660
2000.......................................................... 2,670
2001.......................................................... 609
2002 and thereafter........................................... 3,500
Allowances and discounting.................................... (4,315)
-------
$ 8,124
=======
</TABLE>
Legal Matters
The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and
claims incident to the normal conduct of its business. Although it is
impossible to predict the outcome of any outstanding legal proceeding and
there can be no assurances, the Company believes that its legal proceedings
and claims (including those described below), individually and in the
aggregate, are not likely to have a material adverse effect on its financial
condition, results of operations or cash flows.
Certain Bankruptcy Proceedings. As a result of the consummation of the Plan
on October 1, 1998, all claims against MEG with respect to orders issued by
the District Court in connection with the Plan have been released, as have all
claims by MEG against the Company and all claims against the Company
concerning the effect of the June 1997 change of control of MEG on the voting
power of the stock in the Company owned by MEG.
Spider-Man Litigation. The Company's subsidiaries, Marvel Entertainment
Group, Inc. and Marvel Characters, Inc. (collectively, the "Marvel Parties"),
are parties to a consolidated case pending in the Superior Court of the State
of California for the County of Los Angeles to which Metro-Goldwyn-Mayer
Studios Inc. and two of its affiliates ("MGM"), Columbia Tristar Home Video
and related entities ("Sony"), Viacom International Inc. ("Viacom"), Menahem
Golan and others are also parties. Insofar as the Marvel Parties are
concerned, the litigation involves, on one hand, claims by each of MGM, Sony
and Viacom of rights to produce or to distribute in certain media a feature
length, live action motion picture based upon the Marvel Parties' Spider-Man
character and on the other hand, the Marvel Parties' assertion that none of
these parties has any such rights. In addition to declaratory relief and other
equitable relief with respect to the right to produce or distribute a live
action Spider-Man movie, the Marvel Parties and their adversaries have
asserted unliquidated damage claims against one another on a variety of legal
theories. The rights being asserted by MGM, Sony and Viacom are alleged to
arise under a series of agreements, the first of which dates back to 1985,
under which certain rights to produce and distribute a Spider-Man movie were
granted by the Marvel Parties. Each of these agreements contemplated the
production or distribution of a Spider-Man movie before a specified date after
which the granted rights terminated or reverted to the Marvel Parties. The
Marvel Parties contend that all rights granted under these agreements have
expired or been terminated by agreement or that the claims asserted are barred
for a variety of other reasons. On February 3, 1999, the court granted the
Marvel Parties' motion for summary judgment dismissing certain of MGM's
claims. Additional motions by the Marvel Parties for summary judgment
dismissing other MGM claims and certain Viacom claims are scheduled for
hearing in late February 1999. A trial is currently scheduled to begin in
March 1999. The Spider-Man motion picture rights at issue in
F-24
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
the California consolidated case are also the subject of an adversary
proceeding commenced by the chapter 11 trustee of the Marvel Parties in the
District Court for a declaratory judgment that the Marvel Parties are the sole
owners of the unencumbered right to produce and distribute a Spider-Man movie.
The adversary proceeding was stayed by the District Court in August 1998,
subject to the right of the Marvel Parties to apply to lift the stay if the
California case is not adjudicated promptly. Although there can be no
assurances, the Company believes that it will ultimately be successful in
establishing its rights with respect to a Spider-Man movie and intends to
litigate its claims vigorously.
Wolfman v. New Line Cinema Corp. et al. On August 20, 1998, Marvin A.
Wolfman commenced an action in the United States District Court for the
Central District of California against New Line Cinema Corporation, Time
Warner Companies, Inc., the Company, MEG and its wholly-owned subsidiary,
Marvel Characters, Inc., and others. The complaint alleges that the motion
picture Blade, produced and distributed by New Line pursuant to an agreement
with MEG, as well as the Company's sale of action figure toys, infringes
Wolfman's claimed copyrights and trademarks as the author of the original
stories featuring the Blade and Deacon Frost characters (collectively, the
"Work") and that Wolfman created the Work as an independent contractor engaged
by MEG and granted MEG only the non-exclusive right to publish the Work in
print for MEG's Tomb of Dracula series and that Wolfman had relied upon MEG to
apply for registration of copyrights covering the Work in Wolfman's name. The
complaint also charges the defendants in the action with unfair competition
and other tortious conduct based upon Wolfman's asserted rights in the Work.
The relief sought by the complaint includes a declaration that the defendants
have infringed Wolfman's copyrights, compensatory and punitive damages, an
injunction and various other forms of equitable relief. Although there can be
no assurances, the Company believes that each and every component of the Work
was created for MEG as a "work for hire" within the meaning of the applicable
copyright statute and believes that all of Wolfman's claims are without merit
and intends to defend the action vigorously if the action is allowed to
proceed.
In August 1998, MEG responded to the filing of Wolfman's California
complaint by filing a motion in the District Court for an order imposing
monetary sanctions against Wolfman for violating the automatic stay of actions
against debtors or their property imposed under the bankruptcy laws. Shortly
thereafter, Wolfman voluntarily dismissed the complaint against MEG, Marvel
Characters, Inc., Marvel Studios and Marvel Comics and agreed in writing not
to take any further action with respect to the California action without leave
of the District Court. On October 30, 1998, Wolfman filed a motion in the
District Court seeking leave to prosecute his claims in the California action,
which motion was denied on January 7, 1999.
Prior to commencing his action in California, on January 24, 1997,
Wolfman filed a proof of claim in the bankruptcy cases of MEG and Marvel
Characters, Inc., asserting ownership rights to the Blade and Deacon Frost
characters, among others. The Company intends to object vigorously to this
claim and to seek a declaration that Marvel Characters, Inc. (which is now a
wholly-owned subsidiary of the Company), not Wolfman, is the lawful owner of
the rights claimed by Wolfman.
Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
submitted to the Company for payment. While the amounts claimed are material
to the Company's financial position, the Company believes that the ultimate
resolution of these matters will not be material to the Company's financial
condition, results of operations or cash flows, although there can be no
assurances.
14. Benefits Plans
The Company has a 401(k) Plan for its employees. In addition, in connection
with the sale of Fleer (see Note 3), the Company retained certain liabilities
related to a noncontributory defined benefit pension plan for
F-25
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
salaried employees. In prior years, this plan was amended to prohibit
participation by new participants. The accumulated benefit obligation is
approximately $18.9 million. The funded value of plan assets is approximately
$15.9 million and the pension liability at December 31, 1998 is approximately
$3.0 million. Plan expenses for the years ended December 31, 1996, 1997, and
1998 were not significant.
15. Segment Information
Following the Company's acquisition of MEG (see Note 1), the Company
realigned its businesses into three segments: Toy Merchandising and
Distributing, Publishing and Licensing Segments.
Toy Merchandising and Distributing Segment
The toy merchandising and distributing segment designs, develops, markets
and distributes both innovative and traditional toys in the United States and
internationally. The Company's toy products fall into three categories: toys
based on its characters, proprietary toys designed and developed by the
Company, and toys based on properties licensed to the Company by third
parties. This segment derives revenues from products based on characters
licensed from the licensing segment. In addition, the Company has diversified
its product line by developing a proprietary line of toys, as well as by
developing toys under licensing agreements with non-affiliated licensors.
Publishing Segment
The Company acquired its publishing segment of operations on October 1,
1998 (see Note 1).
The publishing segment is a creator and publisher of comic books
principally in North America. The acquired company has been publishing comic
books since 1939 and has developed a roster of more than 3,500 Marvel
Characters. The Company's titles feature classic Marvel Super Heroes and X-
Men, newly developed Marvel Characters, and characters created by other
entities and licensed to the Company.
F-26
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
Licensing Segment
The Company acquired its licensing segment on October 1, 1998 (see Note 1).
The licensing segment relates to the licensing of or joint ventures
involving the Marvel Characters for use with (i) merchandise, (ii) promotions,
(iii) publishing, (iv) television and film, (v) on-line and interactive
software and (vi) restaurants, theme parks and site-based entertainment.
<TABLE>
<CAPTION>
Toys Publishing Licensing Total
-------- ---------- --------- --------
(in thousands)
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Net sales............................ $221,624 -- -- $221,624
Gross profit......................... 105,169 -- -- 105,169
Operating income..................... 27,215 -- -- 27,215
EBITDA(1)............................ 43,293 -- -- 43,293
Total capital expenditures........... 23,848 -- -- 23,848
<CAPTION>
Toys Publishing Licensing Total
-------- ---------- --------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997
Net sales............................ $150,812 -- -- $150,812
Gross profit......................... 43,861 -- -- 43,861
Operating (loss)..................... (49,288) -- -- (49,288)
EBITDA(1)............................ (28,220) -- -- (28,220)
Total capital expenditures........... 17,744 -- -- 17,744
Identifiable assets for continuing
operations.......................... $146,770 -- -- $146,770
Net assets held for disposition...... 4,136 -- -- 4,136
-------- --- --- --------
Total identifiable assets............ $150,906 -- -- $150,906
</TABLE>
<TABLE>
<CAPTION>
Toys Publishing Licensing Corporate Total
-------- ---------- --------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1998
Net sales................. $212,436 $ 14,707 $ 4,933 -- $232,076
Gross profit.............. 92,743 6,820 4,535 -- 104,098
Operating (loss).......... (18,742) 258 (976) -- (19,460)
EBITDA(1)................. 1,259 1,409 4,295 -- 6,963
Total capital
expenditures.............. 17,325 -- -- -- 17,325
Identifiable assets for
continuing operations.... $149,842 $101,697 $401,098 $11,267 $663,904
Net assets held for
disposition.............. -- 26,000 -- -- 26,000
-------- -------- -------- ------- --------
Total identifiable
assets................... $149,842 $127,697 $401,098 $11,267 $689,904
</TABLE>
- - --------
(1) "EBITDA" is defined as earnings before extraordinary items, interest
expense, taxes, depreciation and amortization. EBITDA does not represent
net income or cash flow from operations as those terms are defined by
generally accepted accounting principles and does not necessarily indicate
whether cash flows will be sufficient to fund cash needs.
See Note 8 regarding sales to major customers and international operations of
the Company's toy business.
F-27
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
16.Supplemental Financial Information
The following represents the supplemental consolidating condensed financial
statements of Marvel Enterprises, Inc., which will be the issuer of the Notes,
and its subsidiaries that will guarantee the Notes and the non-guarantor
subsidiaries as of December 31, 1997 and 1998 and for each of the three years
in the period ended December 31, 1998.
<TABLE>
<CAPTION>
Issuer
and Non-
Guarantors Guarantors Total
---------- ---------- --------
(in thousands)
<S> <C> <C> <C> <C>
For The Year Ended December 31, 1996
Net sales............................. $176,641 $44,983 $221,624
Gross profit.......................... 82,815 22,354 105,169
Operating income...................... 12,116 15,099 27,215
Net income............................ 3,526 13,161 16,687
For The Year Ended December 31, 1997
Net sales............................. $117,571 $33,241 $150,812
Gross profit.......................... 33,542 10,319 43,861
Operating (loss) income............... (55,205) 5,917 (49,288)
Net (loss) income..................... (34,613) 5,148 (29,465)
For The Year Ended December 31, 1998
Net sales............................. $198,358 $33,718 $232,076
Gross profit.......................... 91,293 12,805 104,098
Operating (loss) income............... (23,784) 4,324 (19,460)
Net (loss) income..................... (36,529) 3,919 (32,610)
<CAPTION>
Issuer
and Non- Inter-
Guarantors Guarantors company Total
---------- ---------- -------- --------
December 31, 1997
<S> <C> <C> <C> <C>
Current assets ....................... $107,430 $28,346 $(18,804) $116,972
Non-current assets.................... 28,990 4,944 -- 33,934
-------- ------- -------- --------
Total assets.......................... $136,420 $33,290 $(18,804) $150,906
======== ======= ======== ========
Current and total liabilities......... 53,430 8,299 (18,804) 42,925
Stockholders' equity.................. 82,990 24,991 -- 107,981
-------- ------- -------- --------
$136,420 $33,290 $(18,804) $150,906
======== ======= ======== ========
December 31, 1998
Current assets........................ $167,921 $29,571 $(24,908) $172,584
Non-current assets.................... 512,667 4,653 -- 517,320
-------- ------- -------- --------
Total assets.......................... $680,588 $34,224 $(24,908) $689,904
======== ======= ======== ========
Current liabilities................... 325,471 5,413 (24,908) 305,976
Non-current liabilities............... 27,924 -- -- 27,924
8% Preferred Stock.................... 172,380 -- -- 172,380
Stockholders' equity.................. 154,813 28,811 -- 183,624
-------- ------- -------- --------
$680,588 $34,224 $(24,908) $689,904
======== ======= ======== ========
</TABLE>
F-28
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
Issuer
and Non-
Guarantors Guarantors Total
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Year Ended December 31, 1996
Cash Flows From Operating Activities:
Net Income..................................... $ 3,526 $13,161 $ 16,687
========= ======= =========
Net cash provided by (used in) operating
activities.................................. (191) (681) (872)
Net cash provided by (used in) investing
activities.................................. (24,024) 176 (23,848)
Net cash provided by (used in) financing
activities.................................. 8,258 -- 8,258
--------- ------- ---------
Net increase (decrease) in cash................ (15,957) (505) (16,462)
Cash, at beginning of period................... 21,108 1,376 22,484
--------- ------- ---------
Cash, at end of period......................... $ 5,151 $ 871 $ 6,022
========= ======= =========
Year Ended December 31, 1997
Cash Flows From Operating Activities:
Net Income..................................... $ (34,563) $ 5,098 $ (29,465)
========= ======= =========
Net cash provided by (used in) operating
activities.................................. 13,191 (440) 12,751
Net cash provided by (used in) investing
activities.................................. (22,503) 203 (22,300)
Net cash provided by (used in) financing
activities.................................. 11,123 -- 11,123
--------- ------- ---------
Net increase (decrease) in cash................ 1,811 (237) 1,574
Cash, at beginning of period................... 5,151 871 6,022
--------- ------- ---------
Cash, at end of period......................... $ 6,962 $ 634 $ 7,596
========= ======= =========
Year Ended December 31, 1998
Cash Flows From Operating Activities:
Net Income..................................... $ (36,429) $ 3,819 $ (32,610)
========= ======= =========
Net cash provided by (used in) operating
activities.................................. 28,454 545 28,999
Net cash provided by (used in) investing
activities.................................. (272,634) 230 (272,404)
Net cash provided by (used in) financing
activities.................................. 279,500 -- 279,500
--------- ------- ---------
Net increase (decrease) in cash................ 35,320 775 36,095
Cash, at beginning of period................... 6,962 634 7,596
--------- ------- ---------
Cash, at end of period......................... $ 42,282 $ 1,409 $ 43,691
========= ======= =========
</TABLE>
F-29
<PAGE>
MARVEL ENTERPRISES, INC.
(formerly Toy Biz, Inc.)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Allowances
Balance Acquired in Charged to Sales Charged to Balance
at Beginning MEG or Costs and Other at End
Description of Period Acquisition Expenses Accounts Deductions of Period
----------- ------------ ----------- ---------------- ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1996
Allowances included in
Accounts Receivable.
Net:
Doubtful accounts--
current................ $ 516 -- -- -- 31 $ 485
Advertising, markdowns,
returns, volume
discounts and other.... 10,755 -- 39,317(2) -- 35,216 14,856
Year Ended December 31,
1997
Allowances included in
Accounts Receivable.
Net:
Doubtful accounts--
current................ 485 -- -- -- 55 430
Advertising, markdowns,
returns, volume
discounts, and other... 14,856 -- 55,746(2) -- 41,215 29,387
Year Ended December 31,
1998
Allowances included in
Accounts Receivable.
Net:
Doubtful accounts--
current................ 430 3,112 409(1) -- 343 3,608
Doubtful accounts--non-
current................ -- 521 -- -- -- 521
Advertising, markdowns,
returns, volume
discounts and other.... 29,387 6,255 33,998(2) -- 48,325 21,315
</TABLE>
- - --------
(1) Charged to costs and expenses.
(2) Charged to sales.
F-30
<PAGE>
EXHIBIT 2.2
================================================================================
ASSET PURCHASE AGREEMENT
by and among
FLEER CORP.,
FRANK H. FLEER CORP. and
SKYBOX INTERNATIONAL, INC.
and
GOLDEN CYCLE, LLC
Dated as of January 29, 1999
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Purchase and Sale of Assets.............................................................. 1
(a) Generally......................................................................... 1
(b) Excluded Assets................................................................... 4
2. Assumption of Liabilities................................................................ 5
(a) Generally......................................................................... 5
(b) Excluded Liabilities.............................................................. 6
(c) Risk of Loss...................................................................... 8
(d) Assumption of Contractual Liabilities; Warranty Obligations....................... 8
3. Closing; Purchase Price Adjustment....................................................... 9
(a) Closing............................................................................. 9
(i) Payments by Buyer at Closing...................................................... 9
(ii) Deliveries by Sellers at Closing.................................................. 9
(iii) Determination of Closing Net Worth................................................ 9
(b) Determination and Allocation of Purchase Price.................................... 12
(c) Sales or Transfer Taxes and Recording Fees........................................ 13
(d) Other Taxes....................................................................... 13
(e) Definition of Taxes............................................................... 13
4. Conditions to Closing.................................................................... 13
(a) Buyer's Obligations............................................................... 13
(b) Sellers' Obligation............................................................... 15
5. Representations and Warranties of Sellers................................................ 16
(a) Organization and Authority of Seller.............................................. 16
(b) Financial Statements.............................................................. 16
(c) Taxes............................................................................. 17
(d) Title to Personal Property........................................................ 17
(e) Title to Real Property............................................................ 18
(f) Condition of Tangible Acquired Assets............................................. 18
(g) Intellectual Property............................................................. 18
(h) Contracts......................................................................... 19
(i) Litigation; Decrees............................................................... 20
(j) Insurance......................................................................... 21
(k) Employee Benefits; ERISA.......................................................... 21
(l) Compliance with Laws.............................................................. 22
(m) Employee and Labor Relations...................................................... 22
(n) Broker's Fees..................................................................... 22
(o) Business Assets................................................................... 22
(p) Inventory......................................................................... 22
(q) Conflict of Interest.............................................................. 22
(r) Absence of Certain Business Practices............................................. 23
6. Covenants of Seller...................................................................... 23
(a) Access............................................................................ 23
(b) Ordinary Conduct.................................................................. 23
(c) Insurance......................................................................... 24
(d) Delivery of Records............................................................... 24
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(e) Transfer of Intellectual Property................................................. 24
(f) Change of Name.................................................................... 24
(g) Bank Accounts..................................................................... 24
(h) Covenant Not to Compete........................................................... 24
(i) Real and Personal Property Adjustments After the Closing Date..................... 25
7. Representations and Warranties of Buyer.................................................. 25
(a) Organization and Authority of Buyer............................................... 26
(b) Litigation; Decrees............................................................... 26
(c) Availability of Funds............................................................. 26
(d) HSR Act........................................................................... 26
(e) Broker's Fees..................................................................... 27
8. Covenants of Buyer....................................................................... 27
(a) Agreement......................................................................... 27
(b) Buyer Cooperation................................................................. 27
(c) Assignment........................................................................ 27
9. Mutual Covenants......................................................................... 27
(a) Reasonable Best Efforts........................................................... 27
(b) Consents.......................................................................... 28
(c) Publicity......................................................................... 28
(d) Disclosure Supplements............................................................ 28
(e) Agreement to Negotiate License Arrangement........................................ 29
(f) Settlement of Avoidance Litigation Claims......................................... 29
(g) Cooperation....................................................................... 29
10. Employees and Employee Benefits.......................................................... 29
(a) Offers of Employment.............................................................. 29
(b) Continuation of Participation in Sellers' Plans................................... 30
(c) COBRA............................................................................. 30
(d) 401(k) Plan..,.................................................................... 30
(e) No Third Party Beneficiaries...................................................... 31
11. Indemnification.......................................................................... 31
(a) Survival of Representations....................................................... 31
(b) Sellers' Agreement to Indemnify................................................... 31
(c) Buyer's Agreement to Indemnify.................................................... 32
(d) Monetary Limitation of Liability.................................................. 32
(e) Conditions of Indemnification..................................................... 33
(f) Other Limitations................................................................. 33
(g) Bulk Sales........................................................................ 34
12. Further Assurances....................................................................... 34
13. Assignment............................................................................... 34
14. No Third-Party Beneficiaries............................................................. 34
15. Termination.............................................................................. 34
16. Expenses................................................................................. 35
17. Amendments............................................................................... 35
18. Notices.................................................................................. 35
19. Interpretation........................................................................... 36
20. Counterparts............................................................................. 37
21. Entire Agreement......................................................................... 37
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
22. Severability............................................................................. 37
23. Governing Law............................................................................ 37
24. Disclosure Schedule...................................................................... 38
25. Related to the Business.................................................................. 38
26. Knowledge................................................................................ 38
</TABLE>
DISCLOSURE SCHEDULE
-------------------
1(a)(xi) - Retained Litigation Claims
1(b)(iii) - Excluded Agreements
2(a)(x) - List of Licenses and Leases
4(b)(vi) - Consents
5(a) - Foreign Jurisdictions for Sellers
5(d) - Title to Personal Property
5(e) - Leased Property
5(g) - Intellectual Property
5(h) - Contracts
5(i) - Litigation
5(k)(i) - Employee Benefit Plans
5(k)(ii) - Employee Compensation
5(m) - Employee and Labor Relations
5(p) - Inventory
5(q) - Conflict of Interest
6(b) - Ordinary Conduct of Sellers
EXHIBITS
--------
Exhibit 5(b) Interim Statement
Exhibit 9(e)(ii) License Inventory Disposal
iii
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT, dated as of January 29, 1999, is
entered into by and among Fleer Corp., a Delaware corporation ("Fleer"), Frank
H. Fleer Corp., a Delaware corporation ("Frank Fleer Corp."), and SkyBox
International, Inc., a Delaware corporation ("SkyBox," and together with Fleer
and Frank Fleer Corp., "Sellers"), Marvel Enterprises, Inc., a Delaware
corporation and an affiliate of each Seller ("Marvel"), Golden Cycle, LLC, a
Pennsylvania limited liability company ("Buyer"), Roger Grass and Alexander
Grass.
RECITALS
WHEREAS, Sellers are engaged in the business of manufacturing and
selling sports and entertainment trading cards (the "Business"); and
WHEREAS, Sellers desire to sell and Buyer desires to purchase
substantially all of the non-cash assets of Sellers on the terms and subject to
the conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual covenants and conditions contained herein, and intending to be legally
bound, the parties hereby agree as follows:
1. Purchase and Sale of Assets.
---------------------------
(a) Generally. On the terms and subject to the conditions of this
---------
Agreement, at the Closing (as defined in Section 3(a) hereof), Sellers hereby
agree to sell, transfer, convey and deliver to Buyer, free and clear of all
Liens, except for Permitted Liens which arise out of the Assumed Liabilities (as
defined in Section 2(a) hereof), and Buyer hereby agrees to purchase from
Sellers, all of Sellers' right, title and interest immediately prior to the
Closing in all property, assets and rights, wherever located (collectively, the
"Assets"), other than the Excluded Assets (as defined in Section 1(b) hereof)
(the Assets to be so conveyed shall hereafter be referred to as the"Acquired
Assets") and Buyer shall assume from Sellers the Assumed Liabilities. The
Acquired Assets shall include, without limitation, all of Sellers' right, title
and interest immediately prior to the Closing in the following, other than any
such property and assets specifically identified as Excluded Assets:
(i) all equipment, machinery, furniture and fixtures,
office equipment and fixed assets (collectively, "Equipment");
(ii) all warranties, guarantees by any manufacturer,
supplier or other transferor to the extent primarily related to any of the
Acquired Assets, whether express or implied ("Warranties" );
(iii) all unpaid accounts, notes and other receivables in
favor of Sellers which arose out of Sellers' conduct of the Business,
together with any security interests and all letters of credit in favor of
Sellers with respect thereto, but excluding (i) any account, account
receivable, note or note receivable payable to the Sellers by Marvel, or
any of its subsidiaries, (ii) any of the foregoing as to which Sellers
shall have received
<PAGE>
actual notice, or shall have Knowledge, prior to the Closing that the
account debtor (A) has been declared a bankrupt by any court of competent
jurisdiction, (B) has commenced or is the subject of any proceeding to be
declared a bankrupt, (C) has declared itself insolvent in any court
proceedings, (D) has made an assignment for the benefit of creditors, (E)
has consented to the appointment of a trustee or receiver for a substantial
part of its property, (F) has had such a trustee or receiver appointed
without its consent or (G) has refused to make payment of any such account,
account receivable, note or note receivable in whole or in part because of
a disputed claim or otherwise, and (iii) any account, account receivable,
note or note receivable which prior to the Closing shall have been placed
by Sellers in the hands of a third party for collection (the accounts,
accounts receivable, notes and notes receivable to be transferred to Buyer
pursuant hereto are hereinafter called the "Receivables");
(iv) cash equal to the sum of (A) in the bank accounts of
Sellers on the Closing Date in an amount sufficient to cover all
outstanding checks written by Sellers on or prior to the Closing Date, and
(B) received by Sellers as advance payments on sales to customers
classified as "hobby direct customers," and not yet applied against
purchases by such "hobby direct customers" (such cash sum is hereinafter
referred to as the "Required Closing Date Cash Balance");
(v) all inventory (including raw materials, work in
process, parts, finished goods and inventory in transit), packaging
materials and supplies of Sellers ("Inventory");
(vi) all bids, proposals, customer orders, contracts,
leases, sale orders, purchase orders and commitments with respect thereto
issued by or to Sellers ("Purchase Orders");
(vii) all contracts, indentures, guarantees, leases,
licenses, commitments and other agreements related to the Business to which
any Seller is a party on the Closing Date or by which any of the Acquired
Assets is then bound, including, without limitation, employee secrecy
agreements between any of the Sellers and any employee thereof employed at
any time prior to the Closing Date, including the Contracts (as defined in
Section 5(h) hereof);
(viii) all foreign and domestic copyrights and other works
of authorship, patents, trademarks, trade names, trade dress, logos,
registrations and applications for any of the foregoing, trade secrets,
inventions, know how, other confidential or proprietary information,
designs, models, formulae (including product formulations), processes,
computer software (including both owned and licensed software) and other
intellectual property primarily related to the Business or owned by the
Sellers or which the Sellers have the right to use and assign to Buyer
("Intellectual Property"), including the right to sue for the infringement
of any Intellectual Property rights, provided, that Damages (as defined in
--------
Section 11(b) hereof) with respect to pending actions or lawsuits are to be
apportioned between Sellers and Buyer, pro rata based on the period of any
such infringement occurring pre-Closing and post-Closing, respectively;
provided, that prior to the apportionment of such Damages, each of Buyer
--------
and Sellers
2
<PAGE>
shall be reimbursed pro rata from such Damages for their respective costs
and expenses incurred by each of them in the prosecution of such
infringement of any Intellectual Property rights;
(ix) all franchises, approvals, permits, licenses, orders,
registrations, certificates, variances and similar rights obtained from any
Governmental Authority (as defined in Section 4(a)(v) hereof) primarily
related to the Business or the Assets ("Licenses and Permits");
(x) all sales records, purchase records, customer lists,
supplier lists, advertising and promotional materials, production records
and other records primarily related to the Business; all records regarding
the Occupational Safety and Health Act and other governmental examinations
and clearances primarily related to the Business; and all other books and
records primarily related to the Business (collectively, "Books and
Records"); provided that with respect to books and records relating both to
--------
the Business and to other businesses conducted by Sellers or any affiliate
of Sellers, the books and records shall constitute Books and Records and
Assets only to the extent they relate to the Business (and excerpts that do
not relate to the Business may be excised from the Books and Records that
are delivered to Buyer, provided that such excerpts are not required to
make such Books and Records useable and Sellers shall keep an accurate and
complete record of all such excised material); and provided further that
-------- -------
Sellers shall have the right to keep, use and/or transfer to a third party
a copy of any books and records transferred hereunder that are not
exclusive to the Business to the extent that such Books and Records do not
relate to the Business and shall have the right to keep and use a copy of
all Tax (as defined in Section 3(e) hereof) and accounting Books and
Records;
(xi) all claims, and the right to any proceeds relating to
such claims that Sellers have or may have arising out of or relating to any
existing or contingent litigation, suit, action or arbitration, other than
(A) those claims (collectively, the "Retained Litigation Claims") specified
on Section 1(a)(xi) of the Disclosure Schedule accompanying this Agreement
(the "Disclosure Schedule") or (B) the Damages Sellers are entitled to in
Section 1(a)(viii) hereof;
(xii) all bank accounts of Sellers, excluding any and all
cash and cash equivalents contained in such accounts in excess of the
Required Closing Date Cash Balance;
(xiii) all prepaid expenses, goodwill and other intangible
assets primarily related to the Business;
(xiv) those certain leaseholds and other interests in real
property held by Sellers, and all of the Sellers' right, title and interest
in and to all leases, subleases, franchises, licenses, permits, easements
and rights-of-way which are appurtenant to said leased property; and
(xv) all other assets and properties of Sellers which
exist on the Closing Date whether tangible or intangible, real or personal.
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(b) Excluded Assets. The following properties and assets of Sellers
---------------
are excluded from the Assets to be sold to Buyer pursuant to this Agreement (the
"Excluded Assets"), notwithstanding anything to the contrary provided in Section
1(a) hereof:
(i) cash, amounts in bank accounts and certificates of
deposit, together with all other cash equivalents, marketable securities
and short term investments, except for an amount of cash in excess of the
Required Closing Date Cash Balance;
(ii) all rights of Sellers to any deposits, refunds
(including any refund of Taxes required to be paid by Sellers pursuant to
this Agreement) and rights of set off and recoupment, other than as set
forth on the Interim Statement (as defined in Section 5(b) hereof); and
other than the deposit with Worldcom in the amount of $20,000;
(iii) Sellers' rights under the contracts, indentures,
guarantees, leases, licenses, commitments and other agreements listed on
Section 1(b)(iii) of the Disclosure Schedule hereto;
(iv) Sellers' rights under any policies of insurance
purchased by any member of the Seller Group (as defined in Section 11(c)
hereof), or any benefits, proceeds or premium refunds payable or paid
thereunder or with respect thereto, other than any proceeds payable in
respect of loss or damage (a) to any of the Acquired Assets which has not
been fully repaired or restored prior to the Closing or (b) resulting from
any liability assumed by Buyer pursuant to the terms of this Agreement;
(v) except as provided in Section 6(f) with respect to
corporate names, the corporate charter, qualifications to conduct business
as a foreign corporation, arrangements with registered agents relating to
foreign qualifications, taxpayer and other identification numbers, Tax
returns and other Tax records to the extent not primarily related to the
Business (including, without limitation, all Tax records of affiliates of
Sellers), seals, minute books, stock transfer books and similar documents
of Sellers;
(vi) the rights of Sellers under this Agreement or any other
agreement between Sellers and Buyer;
(vii) Licenses and Permits that are not transferable without
the consent of a Government Authority and with respect to which the
requisite consent is not obtained at or prior to the Closing;
(viii) assets held in Sellers' Plans (as defined in Section
5(k) hereof);
(ix) all Retained Litigation Claims and the right to the
proceeds relating to such claims;
(x) the intercompany receivable in the amount of
$37,827,000 owed to Sellers by Marvel reflected in the column headed "Cons.
11/30/98" on the Interim Statement, and all other account, account
receivable, note or note receivable payable to the Sellers by Marvel or any
of its subsidiaries; and
4
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(xi) assets related to any accounting, information systems,
legal, human resource, payroll, treasury, insurance, transportation, Tax or
other general and administrative services supplied by Marvel or one of its
affiliates both to Sellers and one or more other businesses of Marvel or
its affiliates (other than any such assets related primarily to the
Business or used primarily by employees of Sellers).
2. Assumption of Liabilities.
-------------------------
(a) Generally. On the terms and subject to the conditions of
---------
this Agreement, at the Closing, Buyer shall assume all of the following
liabilities, obligations and commitments (whether actual or contingent, matured
or unmatured, liquidated or unliquidated, known or unknown) of Sellers
(collectively, the "Assumed Liabilities"), other than those liabilities and
obligations specifically identified as Excluded Liabilities, in clauses (i)
through (xvii) inclusive of Section 2(b) hereof:
(i) all liabilities of Sellers reflected in the column headed
"Adjusted 11/30/98" on the Interim Statement which are outstanding on the
Closing Date;
(ii) all liabilities of Sellers incurred after the date of the
Interim Statement and prior to the Closing Date, that were incurred by
Sellers (x) in the ordinary course since the date of the Interim Statement
and (y) in accordance with the terms of this Agreement, and (z) would be
included in a balance sheet of Sellers as of the Closing Date prepared in
accordance with the column headed "Adjusted 11/30/98" on the Interim
Statement;
(iii) all obligations and liabilities under the license
agreement (the "NBA License") between Sellers and the NBA Properties, Inc.,
arising on and after February 1, 1999 (exclusive of such obligations and
liabilities arising from a breach of such agreements prior to the Closing
Date), and all obligations and liabilities of Sellers arising after the
Closing Date under all other contracts, Purchase Orders, leases, licenses,
agreements, instruments, commitments and other binding arrangements of
Sellers which are included in the Acquired Assets;
(iv) subject to and except as provided in Section 10 hereof,
all obligations and liabilities of Sellers with respect to all employees of
Sellers who become employees of Buyer at the time of the Closing arising
after the time of the Closing, including, without limitation, all fringe
benefits, vacation pay and sick leave obligations and liabilities, and all
severance obligations and liabilities to such employees who are terminated
on or after the Closing Date;
(v) all sales, transfer or similar taxes or charges, if any,
resulting from the sale and transfer of the Acquired Assets to Buyer
(exclusive of any liabilities arising from the Bulk Sales Act and similar
laws);
(vi) all liabilities, obligations and commitments of any kind,
character or description, whether absolute, contingent, threatened or
otherwise, and whether or not reflected or reserved against on Sellers'
Financial Statements, Books or Records, arising from, or incurred in
connection with, acts or omissions occurring after the Closing Date with
respect to the Acquired Assets or Business;
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(vii) all liabilities and obligations relating to that portion
of Accrued Royalties (as defined in Section 3(a)(iii)(A) hereof) which do
not represent the product of Sellers' Portion of Accrued Royalties (as
defined in Section 3(a)(iii)(G) hereof) multiplied by the Accrued Royalties
("Buyer's Portion of Accrued Royalties");
(viii) all obligations for outstanding checks written by Sellers
on or prior to the Closing Date;
(ix) the liabilities, obligations and commitments of Sellers
with respect to which Sellers are entitled to indemnification from Buyer
pursuant to Section 11(c) hereof; and
(x) all of the obligations of Sellers under the licenses and
leases set forth on Section 2(a)(x) of the Disclosure Schedule hereof which
are not Excluded Assets.
(b) Excluded Liabilities. Notwithstanding any other provision
--------------------
of this Agreement, Buyer will not assume, or become liable in any way in respect
of, and Sellers shall retain and be responsible for, any and all liabilities and
obligations of Sellers (other than the Assumed Liabilities) (collectively, the
"Excluded Liabilities"), including:
(i) except for the liabilities set forth in the column headed
"Adjusted 11/30/98" on the Interim Statement, any liability or obligation
of Sellers, directly or as guarantor, for money borrowed or purchase money
indebtedness;
(ii) any liability or obligation of Sellers for unpaid Taxes
(with respect to the Business or otherwise) for periods or transactions
prior to the Closing or for unpaid income Taxes arising because Sellers are
transferring the Assets, but excluding from the definition of Excluded
Liabilities any liability or obligation of Sellers for transfer, sales, use
and similar Taxes with respect to the Acquired Assets arising in connection
with the consummation of the transactions contemplated hereby to the extent
that Buyer is obligated to pay such Taxes pursuant to Section 3(c) hereof;
(iii) except as provided in Section 16 hereof, any liability or
obligation of Sellers for costs and expenses (other than Taxes) in
connection with the negotiation and execution of this Agreement or the
consummation of the transactions contemplated hereby;
(iv) any liability or obligation of Sellers under this
Agreement or any other agreement between Sellers and Buyer;
(v) amounts due under that certain Settlement Agreement,
dated July 31, 1998 between NBA Properties, Inc., Marvel Entertainment
Group, Inc. and Sellers;
(vi) any liability or obligation arising from or relating to
the contracts, indentures, guarantees, leases, commitments and other
agreements listed on Section 1(b)(iii) of the Disclosure Schedule;
(vii) any liability or obligation arising from or relating to
Sellers' Plans, other than liabilities and obligations which Buyer is
obligated to pay pursuant to Section 10 hereof;
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(viii) except as reflected on the Interim Statement, any
obligations, liabilities or responsibilities of Sellers or any of their
affiliates with respect to any employee or spouse or dependent or family
member of any employee or former employee of any of the Sellers or any of
their respective affiliates resulting from or arising out of such
employee's or former employee's employment prior to the Closing or the
termination of such employment, including, without limitation, obligations,
liabilities or responsibilities with respect to any (a) deferred
compensation, overtime compensation, wages, salaries, stock option, stock
purchase, severance, retainer, consulting or incentive plan or agreement,
(b) plan or policy providing for "fringe benefits" to its employees, (c)
employment agreement, (d) any accident, event or other occurrence
compensable under any applicable workers' compensation or similar state
law, (e) civil rights laws, wrongful discharge claims or any other claim,
charge or complaint relating to employment with Sellers or any of their
affiliates prior to the time of the Closing or the termination of such
employment and (f) any employee benefit plan as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
currently or previously maintained or contributed to by any member of a
controlled group (within the meaning of Section 414(b), (c), (m) or (o) of
the Internal Revenue Code of 1986, as amended (the "Code"), or Section
4001(a)(14) of ERISA) which includes Sellers, other than liabilities which
Buyer is obligated to pay pursuant to Section 10 hereof;
(ix) any liabilities or obligations of any Seller or any of
their affiliates in the case captioned In Re: Marvel Entertainment Group,
----------------------------------
Inc., et al., Case No. 97-638-RRM, in the United States District Court in
-------------
the District of Delaware, relating to or arising under or discharged
pursuant to the Fourth Amended Joint Plan of Reorganization Proposed by the
Secured Lenders and Toy Biz, Inc. (the "Plan") dated July 31, 1998 and
confirmed by order of the United States District Court for the District of
Delaware, dated July 31, 1998 ("Bankruptcy Claims");
(x) all liabilities and obligations relating to that portion
of the Accrued Royalties which represent Sellers' Portion of Accrued
Royalties;
(xi) all intercompany indebtedness between one or more of
Sellers, on the one hand, and one or more of Marvel and its affiliates on
the other hand;
(xii) all liabilities and obligations of Sellers with respect
to any contracts or agreements between Sellers and the National Hockey
League Players Association and NHL Enterprises, Inc.;
(xiii) all obligations and liabilities of Sellers with respect
to the NBA License arising prior to February 1, 1999;
(xiv) litigation, claims or proceedings by or before any court,
or governmental or regulatory agency or body, or any judicial or quasi-
judicial forum or mediation or arbitrations, whether or not existing at the
time of the Closing, (a) to the extent related to or based upon the actions
or failures to act of any Person prior to the time of the Closing in
connection with the Acquired Assets or the Business or (b) for infringement
of the Intellectual Property rights of any other Person which infringement
occurred prior to the time of the Closing in connection with the Acquired
Assets or the Business;
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(xv) all liabilities of Sellers reflected in the column headed
"Adj." on the Interim Statement;
(xvi) the liabilities, obligations and commitments of Sellers
with respect to which Buyer is entitled to indemnification from Sellers
pursuant to Section 11(b) hereof;
(xvii) except for Assumed Liabilities, all liabilities of
Sellers which exist at the time of the Closing, whether actual or
contingent, matured or unmatured, liquidated or unliquidated, known or
unknown; and
(xviii) liabilities and obligations primarily related to the
Excluded Assets.
provided, however, that nothing stated herein shall limit the provisions of,
- - -------- -------
and the respective obligations of Sellers and Buyer under, Sections 5(f) and 11
hereof.
(c) Risk of Loss. Sellers shall bear the risk of loss of,
------------
and all obligations, if any, to insure, the tangible assets of the Business and
the property of any third parties in the possession, custody or control of the
Business or for which the Business is responsible, to the Closing Date, and such
risk of loss and obligation to insure with respect to the Acquired Assets shall
transfer from Sellers to Buyer on the Closing Date.
(d) Assumption of Contractual Liabilities; Warranty
-----------------------------------------------
Obligations. At the Closing, Buyer shall assume all liabilities, warranty
- - -----------
obligations and any other obligations with regard to the Contracts, and all
performance bonds or other bonds or guarantees relating thereto entered into or
made in the ordinary course of the Business which are described in Section 5(h)
of the Disclosure Schedule. Notwithstanding the foregoing, no Contracts shall be
assigned contrary to law or the terms of such Contracts. If there are Contracts
that cannot be assigned or novated to Buyer at the Closing and the failure to
assign or novate the Contract would result in the condition contained in Section
4(a)(iii) not being satisfied, the performance obligations of Sellers thereunder
shall, unless not permitted by such Contracts, be deemed to be subleased or
subcontracted to Buyer until such Contracts have been assigned or novated. Buyer
shall utilize its commercially reasonable efforts (which shall not include the
expenditure of money) and take all necessary actions, to assist the Sellers in
obtaining any necessary consents or approvals required to assign or novate such
Contracts. Each Seller shall utilize its commercially reasonable efforts (which
shall not include the expenditure of money) to obtain all necessary consents or
approvals required to assign or novate such Contracts and Buyer shall take all
necessary actions to perform and complete all Contracts in accordance with their
terms if neither assignment, novation, subleasing nor subcontracting is
permitted by the other party. Each Seller shall pay over to Buyer any amounts
received by any of the Sellers or their respective affiliates after the Closing
as a result of performance by Buyer of such Contracts, which payment shall be
made promptly, but in no event more than ten (10) days following receipt thereof
by any of the Sellers or any of their respective affiliates (without set off or
demand of any kind). Buyer shall indemnify and hold the Seller Group harmless,
in accordance with terms of Section 11 hereof, with respect to Contracts under
which Buyer has received the benefits pursuant to this Section 2(d). Buyer shall
not have any obligation to indemnify Sellers pursuant to the terms of this
Agreement with respect to any Contract for which Buyer cannot receive the
benefit of such Contract despite Buyer's reasonable commercial efforts to
perform thereunder.
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3. Closing; Purchase Price Adjustment.
----------------------------------
(a) Closing. The closing (the "Closing") of the purchase and sale of
-------
the Acquired Assets and the consummation of the transactions contemplated by
this Agreement shall be held at the offices of Battle Fowler LLP, located at 75
East 55th Street, New York, New York, at 11:00 a.m. Eastern Standard Time on
February 10, 1999, or, if the conditions to Closing set forth in Section 4 of
this Agreement shall not have been so satisfied or waived by the appropriate
party by such time on such date, at such time as the parties shall agree on the
fifth business day following the date on which all of the conditions to Closing
set forth in Section 4 shall have been so satisfied or waived. The date on which
the Closing shall occur is hereinafter referred to as the "Closing Date" and the
transfer shall for all purposes be considered effective as of the close of
business on the Closing Date.
(i) Payments by Buyer at Closing. In consideration of the sale,
----------------------------
transfer, conveyance and delivery of all of the Assets by Sellers to Buyer on
the Closing Date, and in reliance upon the representations, warranties,
covenants and agreements made herein by Seller, Buyer shall, in full payment
therefor, subject to Section 3(a)(iii) hereof, pay to Sellers by wire transfer
to the bank and account specified by Sellers in writing cash in the amount of
$26,000,000 (the $26,000,000 in cash paid by Buyer as adjusted pursuant to
Section 3(a)(iii) hereof is referred to in this Agreement as the "Purchase
Price"), and deliver to Sellers, the Bill of Sale, General Assignment and
Assumption Agreement (the "General Assignment and Assumption Agreement"), in
form and substance reasonably satisfactory to Buyer and Sellers.
(ii) Deliveries by Sellers at Closing. To effect the transfer
--------------------------------
referred to in Section 1(a) hereof, Sellers shall, on the Closing Date, execute
and deliver to Buyer: the General Assignment and Assumption Agreement; and the
agreements and other instruments required to be delivered by Sellers to Buyer
pursuant to Section 4(a) hereof, together with such other instruments as may be
reasonably requested by Buyer (including UCC-3 termination statements on UCC-1
financing statements filed against Sellers or the Acquired Assets) to transfer
to Buyer Sellers' right, title and interest in the Acquired Assets, without
recourse or representation except as provided in this Agreement.
(iii) Determination of Closing Net Worth.
----------------------------------
A. It is the intention of the parties that the Purchase
Price shall be adjusted dollar-for-dollar to reflect
any difference between the actual Net Worth (as defined
in clause (E) below) as of the Closing Date and a
deficit Net Worth of $2,071,000. It is also the
intention of the parties that the Sellers bear a
portion of the Seller's accrued royalty payables as of
the Closing Date. Within 45 days after the Closing
Date, Buyer shall prepare in good faith (x) a statement
setting forth the actual Net Worth as of the close of
business on the Closing Date (including the components
thereof), after giving effect to the consummation of
the transactions between Sellers and Buyer contemplated
by this Agreement (the "Net Worth Statement"), and (y)
a statement (the "Accrued Royalties Statement") setting
forth the accrued royalties payable (other than
royalties payable in respect of the NBA License) of
Sellers as of the Closing Date ("Accrued Royalties").
The Net Worth Statement shall include a detailed
listing of the
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accounts receivable shown on the Net Worth Statement
other than accounts receivable arising out of sales for
which royalties are or were payable under the NBA
License (the "Net Accounts Receivable"). Buyer shall
deliver a copy of both the Net Worth Statement and the
Accrued Royalties Statement to Sellers within 45 days
after the Closing Date. Throughout the period from the
date of delivery to Sellers of the Net Worth Statement
and the Accrued Royalty Statement until the date of
resolution of any disputed amounts or items thereon,
Buyer shall provide Sellers and Sellers' accountants,
attorneys, agents and representatives reasonable access
during normal business hours, upon reasonable advance
notice, to the Books and Records and employees of Buyer
and the work papers used by Buyer in preparing the Net
Worth Statement and the Accrued Royalty Statement;
provided, however, that Sellers shall schedule such
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access through a representative of Buyer (who Buyer
agrees to designate in the Net Worth Statement) and in
such a way as to avoid material disruption of the
normal business of Buyer.
B. Unless Sellers notify Buyer in writing within thirty
(30) days after delivery to Sellers of the Net Worth
Statement or the Accrued Royalty Statement that Sellers
dispute one or more amounts or items shown on the Net
Worth Statement or the Accrued Royalty Statement, the
Net Worth Statement and the Accrued Royalty Statement
shall be final, conclusive and binding on the parties
hereto. If Sellers notify Buyer in writing within
thirty (30) days after delivery to Sellers of the Net
Worth Statement or the Accrued Royalty Statement that
Sellers dispute one or more amounts or items shown on
the Net Worth Statement or the Accrued Royalty
Statement, together with a brief description of such
dispute, then Buyer and Sellers shall promptly
thereafter meet in good faith to attempt to agree upon
a resolution of any and all such disputed amounts or
items. If Buyer and Sellers are unable to agree upon a
resolution of any disputed amount or item within
fifteen (15) days after receipt by Buyer of Sellers'
notice regarding the existence of such disputed amount
or item, then such disputed amount or item shall be
resolved by an independent nationally recognized
accounting firm, selected by mutual agreement of Buyer
and Sellers, which is not then providing, and has not
provided during the one-year period immediately
preceding the Closing Date, services to any of (i)
Buyer, or any of its affiliates or (ii) Marvel or any
of its subsidiaries, including Sellers (the
"Independent Accountants"). If Buyer and Sellers are
unable to agree upon mutually acceptable Independent
Accountants during the fifteen (15) day period referred
to in the immediately preceding sentence, then such
Independent Accountants shall be selected by mutual
agreement of Buyer's independent public accountant and
Sellers' independent public accountant. The Independent
Accountants shall resolve any and all disputed amounts
and items in accordance with the principles and
methodology set forth
10
<PAGE>
herein within thirty (30) days after such amounts or
items are submitted for resolution by it and the
parties shall be notified of that resolution. The
resolution of such disputed amounts and items by the
Independent Accountants shall be final, conclusive and
binding upon the parties. The fees and expenses of the
Independent Accountants shall be borne equally by Buyer
and Sellers.
C. If the actual Net Worth reflected on the Net Worth
Statement minus Buyer's Portion of Accrued Royalties
(such amount, the "Adjusted Net Worth") is less than
($2,071,000), Sellers shall pay to Buyer the amount of
such deficit, and if the Adjusted Net Worth is more
than ($2,071,000), Buyer shall pay to Sellers the
amount of such excess, in each case, with interest
thereon from, but not including the Closing Date
through and including the date of payment computed as
set forth in clause (D) hereof; provided, however, that
-------- -------
if the difference between the Adjusted Net Worth and
($2,071,000) is not in excess of $50,000, then Sellers
shall not be required under this clause (C) to pay to
Buyer any amounts; and provided, further, that if the
-------- -------
difference between the Adjusted Net Worth and
($2,071,000) is not in excess of $50,000, then Buyer
shall not be required under this clause (C) to pay to
Sellers any amounts. Any amount required to be paid
pursuant to this clause (iii) shall be paid, by wire
transfer of immediately available funds to the bank and
account designated by the party to be paid, (I) if no
amounts or items shown on the Net Worth Statement have
been disputed as provided herein, within thirty-five
days after delivery to Sellers of the Net Worth
Statement or the Accrued Royalty Statement, and (II) if
any amounts or items shown on the Net Worth Statement
or the Accrued Royalty Statement have been disputed and
resolved as provided herein, within two business days
following the resolution, in accordance with clause (B)
hereof, of all such disputed amounts or items.
By way of illustration only, if the actual Net Worth is
($1,000,000) and Buyer's Portion of the Accrued
Royalties is $2,000,000, then the Adjusted Net Worth
would be ($3,000,000). As a result, Sellers would pay
to Buyer an amount equal to $929,000 (($3,000,000) -
$2,071,000). If the actual Net Worth is ($0) and
Buyer's Portion of the Accrued Royalties is $2,000,000,
then the Adjusted Net Worth would be ($2,000,000). As a
result, Buyer would pay to Sellers an amount equal to
$71,000 (($2,000,000) - $2,071,000).
D. Interest payable under clause (C) hereof shall be
payable at the rate of 7.50% per annum, calculated on
the basis of the actual number of days
__________________
* Brackets represent a negative number.
11
<PAGE>
elapsed during the period from but not including the
Closing Date through and including the date of payment.
E. As used in this Agreement, the term "Net Worth" means
the amount by which the sum of the book value of the
Acquired Assets (exclusive of cash or cash equivalents)
exceeds the sum of the book value of the Assumed
Liabilities (exclusive of any amounts of Assumed
Liabilities (i) representing allowance for future sales
returns as set forth on the Net Worth Statement, (ii)
in connection with advance payments on sales to
customers classified as "hobby direct customers" and
not yet applied against purchases by such "hobby direct
customers;" (iii) representing outstanding checks
written by Sellers on or prior to the Closing Date; and
(iv) representing Accrued Royalties), calculated in
accordance with United States generally accepted
accounting principles ("GAAP") consistent with the
principles applied by Sellers in the preparation of the
Interim Statement and the methodology used in preparing
the Interim Statement.
F. The parties agree that any payments pursuant to
paragraph (iii) above shall be deemed to be an
adjustment of the Purchase Price.
G. On the same date as payment is made pursuant to
paragraph (C) hereof, if any, Sellers shall pay a
percentage, if any, of the Accrued Royalties ("Sellers'
Portion of Accrued Royalties") calculated in accordance
with this paragraph. The percentage representing
Sellers' Portion of Accrued Royalties shall be
calculated as follows:
SPAR = 1- (NAR x .22 /AR)
Where "SPAR" is the Sellers' Portion of the
Accrued Royalties, expressed as a decimal;"NAR" is
the Net Accounts Receivable; and "AR" is the
Accrued Royalty.
By way of illustration only, if the Net Accounts
Receivable are $10 million and Accrued Royalties
are $5 million, then Buyer would pay 44%, or $2.2
million of the Accrued Royalties set forth on the
Accrued Royalties Statement ($10 million
multiplied by .22, and divided by $5 million =
44%), and Sellers would pay 56%, or $2.8 million
of the Accrued Royalties set forth on the Accrued
Royalties Statement.
(b) Determination and Allocation of Purchase Price. Within 60 days after
----------------------------------------------
agreement is reached on the Net Worth Statement, Buyer shall deliver to Sellers
a schedule which allocates the Purchase Price and the Assumed Liabilities among
the Acquired Assets in accordance with their fair market value, which allocation
shall comply with Section 1060 of the Code. Such allocation shall be final,
conclusive and binding on each of Buyer and Sellers for purposes of federal and,
where applicable, foreign, state and local Tax returns and for the calculation
of Taxes, including the calculation of Taxes pursuant to Section
12
<PAGE>
3(c), and neither party hereto shall voluntarily take any position inconsistent
therewith. Each of Buyer and Sellers shall timely file a Form 8594 in accordance
with the requirements of Section 1060 of the Code and this Section 3(b). Any
adjustment to the Purchase Price pursuant to Section 3(a) shall cause such
adjustment to the schedule which allocates the Purchase Price as the parties
shall mutually agree.
(c) Sales or Transfer Taxes and Recording Fees. Buyer shall execute and
------------------------------------------
deliver to Sellers at the Closing any appropriate exemption certificate relating
to an occasional sale exemption or an inventory resale exemption from sales,
use, transfer or similar Taxes. Buyer shall be responsible for the payment to
Sellers for remittance by Sellers of all sales, use, transfer and similar Taxes
specifically applicable to the sale by Sellers and the purchase by Buyer of the
other Acquired Assets. Any additional required payment of any such sales, use,
transfer or similar Tax or refund of any such Tax shall be paid by, or refunded
to, Buyer. Sellers and Buyer further agree that Buyer shall be liable for the
payment and remittance of all recording fees relating to the filing of
assignments of registered Intellectual Property, and that each of Sellers and
Buyer shall be liable as is the custom in the locality for the payment and
remittance of any other documentary stamps, recording fees or similar Tax whose
treatment is not specifically addressed herein.
(d) Other Taxes. Sellers shall pay and submit all other social security,
-----------
withholding, sales and unemployment insurance Taxes and returns to the
appropriate municipal, county, state and federal governments due or accrued
through the Closing Date.
(e) Definition of Taxes. For purposes of this Agreement, "Tax" or "Taxes"
-------------------
shall mean all federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customer duties, franchise, profits, withholding, social
security, unemployment, disability, real property, personal property, intangible
property, sales, use or transfer, registration, value added, alternative or add-
on minimum, estimated or other taxes of any kind whatsoever, any governmental
charge or impost of a same or similar nature including any interest, penalty or
additions thereto, whether disputed or not.
4. Conditions to Closing.
---------------------
(a) Buyer's Obligations. The obligations of Buyer to purchase and pay
-------------------
for the Assets pursuant to this Agreement is subject to the satisfaction (or
waiver by Buyer) on or prior the Closing of the following conditions:
(i) The representations and warranties of Sellers made in
Section 5 of this Agreement shall be true and correct in all material
respects immediately prior to the Closing with the same force and effect as
though made immediately prior to the Closing, and Sellers shall have
performed or complied in all material respects with all terms, agreements,
obligations and covenants required by this Agreement to be performed or
complied with by Sellers at the time of the Closing; and Sellers shall have
delivered to Buyer a certificate, dated the Closing Date, to such effect
certified by each of the Sellers.
(ii) Buyer shall have received an opinion, dated the Closing
Date, of Battle Fowler LLP, special counsel to Seller, reasonably
satisfactory to Buyer.
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(iii) Sellers shall have (A) obtained all consents and approvals
required by the Contracts listed on Schedule 2(a)(x) to assign them to
Buyer and (B) either (x) obtained all consents and approvals required by
all other Contracts to assign them to Buyer, except where the failure to
obtain such consents and approvals would not have, individually or in the
aggregate, a material adverse effect on the results of operations,
condition (financial or otherwise), assets, properties or Business of the
Sellers or on the Acquired Assets taken as a whole ("Material Adverse
Effect"), and all of such consents and approvals shall have been obtained
in written instruments reasonably satisfactory to Buyer or (y) complied in
all respects with Section 2(d) hereof with respect to any Contracts
described in this clause (B) for which such consents and approvals have not
been obtained.
(iv) No action, suit or legal, administrative or arbitral
proceeding shall have been instituted by any third party before any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign ("Government Authority"), seeking to
enjoin or challenging, or seeking damages from Buyer in connection with,
the transactions contemplated by this Agreement, and no injunction or order
of any Government Authority of competent jurisdiction shall be in effect as
of the Closing which restrains or prohibits the purchase or sale of the
Acquired Assets hereunder.
(v) No damage, destruction or loss of any of the assets of the
Sellers has occurred or come to exist since the date of this Agreement,
after giving effect to any insurance, which has had or may reasonably be
expected to have a Material Adverse Effect, nor has any event, occurrence,
fact, condition, change or development occurred or come to exist since the
date of this Agreement, which has had or is reasonably likely to have a
Material Adverse Effect (other than those relating to the sports and
entertainment trading card industry generally or general business or
economic conditions).
(vi) Sellers shall have been released by UBS AG Stamford Branch
from the Liens referred to in the two Credit Agreements, each dated
September 28, 1998, by and among Sellers, and the borrowers named therein,
and Sellers shall have obtained the release of all other Liens covering any
of the Acquired Assets which are not Permitted Liens which arise out of the
Assumed Liabilities.
(vii) Buyer shall have entered into employment agreements with
each of Bill Bordegon, Oscar Hauer and Chris Tobia.
(viii) All waiting periods, including any extension thereof,
applicable to the consummation of the transactions contemplated by this
Agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended ("HSR Act") shall have expired.
(ix) Sellers shall have executed and delivered to Buyer, the
General Assignment and Assumption Agreement, dated as of the Closing Date.
(x) Sellers shall have executed and delivered to Buyer,
Assignments of Intellectual Property, dated as of the Closing Date, in form
and substance reasonably satisfactory to Buyer.
14
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(xi) An officer of Sellers shall have executed and delivered a
certificate to Buyer certifying that the aggregate amount of the cash on
the Closing Date in the bank accounts of Sellers equals or exceeds the
Required Closing Date Cash Balance.
(b) Sellers' Obligation. The obligation(s) of Sellers to sell,
-------------------
transfer, convey and deliver the Assets to Buyer pursuant to this Agreement is
subject to the satisfaction (or waiver by Sellers) on or prior to the Closing of
the following conditions:
(i) The representations and warranties of Buyer made in
Section 7 of this Agreement shall be true and correct in all material
respects immediately prior to the Closing with the same force and effect as
though made immediately prior to the Closing, and Buyer shall have
performed or complied in all material respects with all terms, agreements,
obligations and covenants required by this Agreement to be performed or
complied with by Buyer at the time of the Closing; and Buyer shall have
delivered to Sellers a certificate, dated the Closing Date, to such effect
certified by Buyer.
(ii) Sellers shall have received an opinion, dated the Closing
Date, of Wolf, Block, Schorr & Solis-Cohen LLP, special counsel to Buyer,
reasonable satisfactory to Sellers.
(iii) No action, suit or legal, administrative or arbitral
proceeding shall have been instituted by any third party before any
Government Authority seeking to enjoin or challenging, or seeking damages
from Sellers, Marvel or any of their respective affiliates in connection
with, the transactions contemplated by this Agreement, and no injunction or
order of any Government Authority of competent jurisdiction shall be in
effect as of the Closing which restrains or prohibits the purchase or sale
of the Acquired Assets hereunder.
(iv) Sellers shall have been released by UBS AG Stamford
Branch from the Liens referred to in the two Credit Agreements, each dated
September 28, 1998, by and among Sellers, and the borrowers named therein.
(v) Delivery by Buyer to Sellers of the Purchase Price in
immediately available funds.
(vi) Sellers shall have received the consents set forth on
Schedule 4(b)(vi) hereof.
-----------------
(vii) The waiting periods (and any extension thereof)
applicable to the transactions contemplated hereby under the HSR Act shall
have been terminated or shall have otherwise expired.
(viii) Buyer shall have executed and delivered to Sellers, the
General Assignment and Assumption Agreement, dated as of the Closing Date.
(ix) Buyer shall have executed and delivered to Sellers,
Assignments of Intellectual Property, dated as of the Closing Date.
15
<PAGE>
5. Representations and Warranties of Sellers. Each Seller, jointly
-----------------------------------------
and severally, hereby represents and warrants to Buyer that the statements
contained in this Section 5 are true and correct in all respects.
(a) Organization and Authority of Seller. Each Seller is a
------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each Seller is duly qualified and in good standing to
do business as a foreign corporation in each of the States listed in Section
5(a) of the Disclosure Schedule, and Section 5(a) of the Disclosure Schedule
sets forth a true and complete list of the other jurisdictions in which each
Seller is qualified to do business as a foreign corporation. Each Seller has all
corporate power and authority necessary to own and lease its properties and to
carry on its respective businesses as now conducted, to enter into this
Agreement and to consummate the transactions contemplated hereby. All corporate
acts and proceedings required to be taken to authorize the execution, delivery
and performance by Sellers and Marvel of this Agreement and the consummation by
Sellers and Marvel of the transactions contemplated hereby have been duly and
properly taken. This Agreement has been duly executed and delivered by each
Seller and Marvel. Assuming due authorization, execution and delivery by Buyer
of this Agreement, this Agreement constitutes legal, valid and binding
obligations of each Seller and Marvel, enforceable against each Seller and
Marvel in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and by general principles of equity. The execution,
delivery and performance by Sellers and Marvel of this Agreement does not, and
the consummation by Sellers and Marvel of the transactions contemplated hereby
will not, (i) conflict with, or result in any violation of, any provision of the
Certificates of Incorporation or by-laws of Sellers and Marvel, or (ii) conflict
with, result in any violation of, or constitute a default (or an event or
condition which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or the acceleration of the
maturity of any liability or obligation pursuant to, or result in the creation
of any Lien on any of the Acquired Assets under any instrument, contract,
commitment or agreement to which Sellers or any of their respective affiliates,
or Marvel, is a party or by which Sellers or any of their respective affiliates,
or Marvel, or any of the Acquired Assets are bound, or any judgment, order,
writ, injunction or decree to which Sellers or any of their respective
affiliates, or Marvel, have been specifically identified as subject, or any
statute, law, ordinance, rule or regulation applicable to Sellers, any of their
respective affiliates, Marvel or the Acquired Assets (except where such
conflict, violation, default, termination, acceleration or Lien would not
materially impair the ability of Sellers or Marvel to consummate the
transactions contemplated hereby, or would not have, individually or in the
aggregate, a Material Adverse Effect). Except for the filing of premerger
notification and report forms under the HSR Act with respect to the transactions
contemplated hereby, if applicable, no material consent, approval, license,
permit, order or authorization of, notice to or registration, declaration or
filing with (collectively, "Government Approvals") any Government Authority is
required to be obtained or made by or with respect to Sellers in connection with
the execution, delivery and performance by Sellers or Marvel of this Agreement
or the consummation by Sellers or Marvel of the transactions contemplated hereby
or compliance by Sellers or Marvel with the terms hereof, other than those which
if not obtained or made (A) would not materially impair Sellers' or Marvel's
ability to consummate the transactions contemplated hereby or (B) would not,
individually or in the aggregate, have a Material Adverse Effect.
(b) Financial Statements. Sellers have delivered to Buyer true and
--------------------
correct copies of the following financial statements (collectively, the
"Financial Statements"): (i) an unaudited consolidated Balance Sheet of Sellers
as of November 30, 1998 (the "Interim Statement") attached hereto as Exhibit
-------
5(b), and (ii) an unaudited combined Statement of Income of Sellers for the
- - ----
eleven-month period ended
16
<PAGE>
November 30, 1998. The Financial Statements (i) fairly present, in all material
respects, the assets, liabilities and financial condition of Sellers at their
respective dates and the results of operations of Sellers for the respective
periods covered thereby, (ii) have been prepared in conformity with GAAP (except
for the absence of notes) applied on a consistent basis throughout the periods
presented in the Financial Statements, (iii) were prepared in accordance with
the Books and Records of the Sellers; (iv) contain and reflect all necessary
adjustments and accruals for a fair presentation of its financial condition and
the results of its operations for the period covered by said financial
statements (except for year-end audit adjustments); (v) contain and reflect
provisions for all reasonably anticipated liabilities for all Taxes, with
respect to the period then ended and all prior periods; and (vi) with respect to
contracts and commitments for the sale of goods or the provision of services by
Sellers, contain and reflect reserves for all reasonably anticipated returns and
material losses and costs and expenses in excess of expected receipts.
(c) Taxes.
-----
(i) Each Seller has timely filed all material Tax returns
and reports required to be filed by it with respect to the Business.
Sellers have made available to Buyer true and complete copies of each
Seller's Tax returns for the years 1995, 1996 and 1997 relating solely to
the Business.
(ii) Other than Taxes relating to Bankruptcy Claims, all
Taxes related to the Business shown to be due on such Tax returns have been
paid to the proper taxing authority or an adequate reserve (in conformity
with GAAP) has been established therefor.
(iii) Other than Taxes relating to Bankruptcy Claims, no
material deficiencies for Taxes related to the Business have been claimed,
proposed or assessed in writing prior to the date of this Agreement against
Sellers or any of its affiliates by any taxing or other Government
Authority other than deficiencies paid or settled in writing.
None of the Assets is "tax exempt use property" within the meaning of
Section 168(h) of the Code. No Seller is a party to any lease relating to the
Business made pursuant to Section 168(f)(8) of the Internal Revenue Code of
1954, as amended.
(d) Title to Personal Property. There is listed in Section 5(d) of
--------------------------
the Disclosure Schedule (i) a description and the location of each item of
tangible personal property (other than Inventory or motor vehicles) owned by
Sellers or in the possession of any Seller which is to be transferred to Buyer
pursuant hereto having on the date hereof a depreciated book value per unit in
excess of Ten Thousand Dollars ($10,000); (ii) an identification of the owner
of, and any agreement relating to the use of, each item of tangible personal
property (other than motor vehicles) the rights to which are to be transferred
to Buyer pursuant hereto under leases or other similar agreements which provide
for rental payments at a rate in excess of Twenty Five Hundred Dollars ($2,500)
per month; and (iii) an identification of the owner of, and any agreement
relating to the use of, each motor vehicle not owned by Sellers the rights to
which are to be transferred to Buyer pursuant hereto. Except as set forth on
Schedule 5(d) of the Disclosure Schedule, each Seller has or will have at the
time of the Closing good and valid title to all Equipment, Inventory and
Receivables which are owned by it, and valid leasehold interests in, or other
rights to use or derive benefits from, all Equipment which is not owned by such
Seller, in each case free and clear of
17
<PAGE>
all liens, claims, charges, security interests, mortgages, restrictive covenants
and encumbrances of any nature whatsoever ("Liens"), except for Permitted Liens.
As used in this Agreement, the term "Permitted Liens" means (i) mechanics',
materialmen's, carriers', workmen's, warehousemen's, repairmen's or other like
liens on tangible Assets securing obligations incurred in the ordinary course of
Business that are not delinquent; (ii) liens for Taxes and other governmental
charges which are not yet due and payable; (iii) in the case of Leased Property
(as defined in Section 5(e) hereof), Liens on, or defects in, the ownership or
other interests of the lessor of the leased property; and (iv) other than Liens
which do not, individually or in the aggregate, materially impair the value or
the continued use and operation, in the manner as currently used or operated by
Sellers, of the Acquired Assets to which they relate.
(e) Title to Real Property. Section 5(e) of the Disclosure Schedule
----------------------
contains a complete and accurate list of all leaseholds and other interests in
real property held by Sellers (the "Leased Property"). Sellers have no fee title
to and do not own any real property. All leases pursuant to which Sellers may
hold or use any interest owned or claimed by Sellers in or to Leased Property
are in full force and effect with Sellers and, free and clear of all Liens,
except Permitted Liens. Each of the leases described in Section 5(e) of the
Disclosure Schedule is a valid and binding obligation of the respective Seller
referred to therein, and Sellers do not have any Knowledge that any of said
leases is not a valid and binding obligation of each of the other parties
thereto; Sellers are not, and to the Knowledge of Sellers no other party to any
such lease is, in default with respect to any material term or condition
thereof, and the Knowledge of Sellers no event has occurred which through the
passage of time or the giving the notice, or both, would constitute a default
thereunder or would cause the acceleration of any obligation of any party
thereto or the creation of a Lien, other than a Permitted Lien, upon any of the
Acquired Assets.
(f) Condition of Tangible Acquired Assets. To Sellers' Knowledge, all
-------------------------------------
material tangible Acquired Assets owned, leased, used or employed by Sellers, is
in operating condition as required for the proper operation and use thereof in
the ordinary course of Business free from any material defects, except such
defects as require routine maintenance and such defects as do not materially
interfere with the continued use thereof in the conduct of the Business
conducted in connection therewith. No further representation is made concerning
the physical condition of any tangible Acquired Assets. Except as otherwise
provided in this Agreement, the tangible Acquired Assets are being acquired by
Buyer "AS IS AND WHERE IS" as of the Closing Date. EXCEPT AS SET FORTH EXPRESSLY
IN THIS AGREEMENT, SELLER DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY WITH RESPECT
TO THE TANGIBLE ACQUIRED ASSETS, INCLUDING IMPLIED WARRANTIES OF FITNESS,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(g) Intellectual Property. Section 5(g) of the Disclosure Schedule
---------------------
hereto sets forth a true, complete and correct list of all patents and patent
applications, and all registrations of trademarks, trade names, trade dress,
service marks and copyrights, and applications for such registrations, that are
held by Sellers or any of its affiliates worldwide and are primarily related to
the Business. To the Knowledge of Sellers, Sellers own or will own at the time
of Closing (free and clear of all Liens, other than (i) Permitted Liens, and
(ii) other Liens, if any, described in Section 5(g) of the Disclosure Schedule)
or have or will have at the time of the Closing the right to use in the current
manner without payment to any other party (other than pursuant to a license,
coexistence agreement, undertaking, declaration, limitation of use or consent to
use (collectively, "Licenses") described in Section 5(h) of the Disclosure
Schedule), the Intellectual Property used by Sellers in the operation of the
Business. Except as set forth on Section 5(g) of the Disclosure Schedule, to the
Knowledge of Sellers, (i) there are no pending claims which have been made in
writing by any person challenging or questioning either the right of Sellers to
18
<PAGE>
use, or the validity of, any patent, trademark, trade name, trade dress, service
mark or copyright included in the Intellectual Property in any jurisdiction,
domestic or foreign, (ii) there are no pending claims by any person which have
been asserted in writing alleging that such person has the right to use any
patent, trademark, trade name, trade dress, service mark or copyright included
in the Intellectual Property other than pursuant to a License described in
Section 5(h) of the Disclosure Schedule, (iii) except for Bankruptcy Claims,
there are no pending claims of patent, trademark, trade name, trade dress,
service mark or copyright infringement which have been asserted in writing by
any person with respect to the right of Sellers to continue to sell any product
or service of the Business without payment of a royalty, license fee or similar
fee to such person (other than payments that are currently subject to a License
described in Section 5(h) of the Disclosure Schedule, and (iv) no product or
service of the Business infringes any patent, trademark, trade name, service
mark or copyright of any person. Sellers have not received any notice that any
patent, trademark, trade name, trade dress, service mark or copyright included
in the Intellectual Property has been declared unenforceable or otherwise
invalid by any Government Authority. The Intellectual Property and the
intellectual property described in Section 1(b)(x) hereof comprise all of the
intellectual property necessary to conduct and operate the Business as now being
conducted by Sellers, subject to statutory terms of duration, renewal,
termination of transfer or similar statutory provisions.
(h) Contracts. Section 5(h) of the Disclosure Schedule sets forth the
---------
following agreements or contracts, whether oral or written, to which Sellers are
a party or by which Sellers or any of the Assets are bound, other than the
agreements and contracts described in Exhibit 1(b)(iii):
-----------------
(i) any employment contract or consulting agreement with any
consultant or employee earning more than $75,000 per year or having a term
in excess of twelve months other than those that are or at the Closing will
be terminable by a Seller at will and without payment of any penalty or
severance thereunder;
(ii) any lease of Equipment or other personal property involving
payment by a Seller of annual rental in excess of $30,000 or any series of
leases for substantially similar types of Equipment or other personal
property involving payment by a Seller of annual aggregate rentals in
excess of $30,000;
(iii) any contract, agreement or commitment for the purchase of
Equipment involving the expenditure by a Seller of more than $10,000
individually or $25,000 in the aggregate for related purchases;
(iv) any contract or agreement evidencing or related to
indebtedness for borrowed money (other than Purchase Orders for raw
material and inventory);
(v) any commission or broker contract with a commission or
brokerage structure providing for sales requirements for the Business'
products in excess of $20,000 annually;
(vi) any contract, agreement or commitment to sell, lease or
otherwise dispose of any Assets other than in the ordinary course of
Business;
19
<PAGE>
(vii) any contract, agreement or commitment with any affiliate
of Sellers or any director or officer of Sellers or, to the Knowledge of
Seller, any affiliate of any such director or officer (other than
employment agreements and Seller's Plans);
(viii) any contract or agreement purporting to limit the freedom
of Sellers to compete in the Business, in any geographic area or with any
person, except for commission or broker contracts or agreements with
distributors or sales representatives disclosed in paragraph (xi) below,
and except as set forth in the Licenses disclosed on Schedule 2(a)(x);
(ix) any contract, agreement or commitment to use the
intellectual property of non-Sellers which involves payments by Sellers
after the Closing Date in excess of $25,000;
(x) any contract, agreement or commitment which relates
primarily to sales agency or distributorship;
(xi) any contract, agreement or commitment, other than
distributorship agreements, pursuant to which any of Sellers have licensed
any of the Intellectual Property to third parties;
(xii) any contract, agreement or commitment which relates to
partnership, strategic alliance, joint venture or other similar
arrangements involving sharing of profit or expenses; and
(xiii) any contract, agreement or commitment not of the type
covered by any of the foregoing subsections (i) through (xii) which have a
remaining term exceeding one year, except for those which by their terms
are or at the Closing will be terminable by a Seller at will or on 90 or
fewer days' notice and without payment of any penalty or premium thereunder
and except for those which involve aggregate payments per contract,
agreement or commitment of $10,000 or less.
"Contracts" shall mean any such agreement, contract or understanding
required to be disclosed pursuant to this Section 5(h). Each Seller has provided
to Buyer a true and correct copy of each of the written Contracts and a summary
of the material terms of each of the oral Contracts. With respect to any
Contract, there is no existing material default on the part of Sellers or, to
Sellers' Knowledge, on the part of any other party thereto, and such Contracts
are in full force and effect and enforceable in all material respects in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, moratorium and other similar laws affecting
creditors' rights generally and by general principles of equity. To the Sellers'
Knowledge, (A) Sellers are not in default under any of the Contracts, and (B) it
is not probable that Sellers will, prior to the Closing Date, default under any
of the Contracts, except in the case of (A) or (B), where such defaults would
not, individually or in the aggregate, constitute a Material Adverse Effect.
(i) Litigation; Decrees.
-------------------
(i) Except as set forth on Section 5(i) of the Disclosure
Schedule, no action, lawsuit, proceeding or investigation is pending (with
respect to which Sellers have been notified or served) or, to the Knowledge
of Sellers, threatened against Sellers by or before any Government
20
<PAGE>
Authority (other than worker's compensation claims) which, if adversely
determined, would, individually or in the aggregate, (a) adversely affect
the ability of Sellers to consummate the transactions contemplated by this
Agreement or to comply with the terms hereof or thereof or (b) have a
Material Adverse Effect. The representations in this Section 5(i)(i) do not
relate to Taxes or Sellers' Plans, all representations with respect to
which are the subject of Sections 5(c) and (k), respectively.
(ii) Sellers are not specifically identified as a party subject
to any material restrictions or limitations under any judgment, order or
decree of any Government Authority.
(j) Insurance. Sellers are insured under policies presently issued in
---------
favor of Sellers and/or Marvel. None of such insurance policies will be
transferred or assigned to Buyer, and Buyer will not be named as an additional
insured under or entitled to the benefits of any such policy.
(k) Employee Benefits; ERISA.
------------------------
(i) Section 5(k)(i) of the Disclosure Schedule identifies each
of Sellers' Plans. "Sellers' Plans" means each material employee pension,
retirement, stock bonus, stock option, stock purchase, variable pay,
deferred compensation, welfare, hospitalization, medical, dental, vision,
vacation, insurance, sick pay, disability, severance, fringe benefit,
incentive or bonus plan and any other policy, plan, agreement, contract or
arrangement for benefits (including any "employee benefit plan" as defined
in Section 3(3) of ERISA), whether or not subject to ERISA, providing
employee benefits to current or former employees, officers or directors of
the Sellers or any ERISA Affiliate. For purposes of this Agreement, "ERISA
-----
Affiliate" means all persons and entities which are treated as being under
---------
common control with the Sellers, its subsidiaries or any affiliate under
Section 414(b), (c), (m) or (o) of the Code or Section 4001(a)(14) of
ERISA.
(ii) Section 5(k)(ii) of the Disclosure Schedule sets forth a
true and complete description of the salary or hourly compensation, date of
hire, and accrued vacation as of a recent date for employees of Seller.
(iii) Each of Sellers' Plans that is intended to be a tax-
qualified plan under Section 401(a) of the Code has been determined by the
Internal Revenue Service to qualify under Section 401 of the Code, and the
trusts created thereunder have been determined to be exempt from tax under
the provisions of Section 501 of the Code, and nothing has occurred,
including the adoption of or failure to adopt any Plan amendment, which
would adversely affect such qualified or tax-exempt status.
(iv) Except as required by law, the execution of this Agreement
and the consummation of the transactions contemplated hereby, do not
constitute a triggering event under any of Sellers' Plans (as defined in
Section 5(k) herein), whether or not legally enforceable, which (either
alone or upon the occurrence of any additional or subsequent event) will
result in any obligation of the Buyer or any affiliate of Buyer to make any
payment (whether of severance pay, including, and not limited to, salary,
related vacation pay, pension pay and other similar payments and costs, or
otherwise) or to accelerate, vest or increase the amount of benefits
payable to any employee or former employee, officer or director of Sellers
or any ERISA Affiliate of Sellers, except to the extent otherwise provided
in Section 10 hereof.
21
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(l) Compliance with Laws. Sellers are in compliance with all
--------------------
applicable statutes, laws, ordinances, rules, orders and regulations of any
governmental authority or instrumentality, domestic or foreign, except for
noncompliance which would not have, individually or in the aggregate, a Material
Adverse Effect. This Section 5(l) does not relate to Taxes and Sellers' Plans,
all representations with respect to which are the subject of Sections 5(c) and
(k).
(m) Employee and Labor Relations. None of Sellers nor any of their
----------------------------
respective affiliates is a party to or is bound by any collective bargaining
agreements or other contracts with any labor union representing employees of
Sellers. Except as set forth in Section 5(m) of the Disclosure Schedule, there
are no unfair labor practice complaint against Sellers pending before the
National Labor Relations Board or any state or local agency; pending labor
strike or other material labor trouble affecting the Sellers; material labor
grievance pending against the Sellers or pending representation question
respecting the employees of the Sellers.
(n) Broker's Fees. There are no brokerage commissions, finders' or
-------------
agents' fees or similar fees or commissions payable in connection with the
transactions contemplated by this Agreement based on any agreement, arrangement
or understanding with Sellers, or any action taken by or on behalf of Buyer.
(o) Business Assets. Except for the Excluded Assets and except for
---------------
licenses, permits, approvals, authorizations and similar rights which are not
transferable to Buyer, all properties, interests, contracts, assets, licenses,
transferable permits, rights and franchises (of every kind, nature character and
description, real, personal or mixed, tangible or intangible, whether or not
reflected in the Interim Statement) which are utilized primarily in the conduct
of the Business as presently conducted are included in the Acquired Assets and
are either owned by the Sellers or licensed or leased to the Sellers.
(p) Inventory. Except as set forth in Section 5(p) of the Disclosure
---------
Schedule, the Inventory of Sellers consists of merchandise of a quality and
quantity useable and saleable in the ordinary course of business.
(q) Conflict of Interest. Except as set forth in Section 5(q) of the
--------------------
Disclosure Schedule, no officer or director of Sellers or any affiliate of any
such person (other than Marvel or any subsidiary of Marvel) now has, either
directly or indirectly:
(i) any material equity or debt interest in any corporation,
partnership, joint venture, association, organization or other person or
entity which furnishes or sells or during such period furnished or sold
services or products to the Sellers, or purchases or during such period
purchased from Sellers any goods or services, or otherwise does or during
such period did business with the Sellers; or
(ii) any material beneficial interest in any contract, commitment
or agreement to which Sellers are or were a party or under which they were
obligated or bound or to which their properties may be or may have been
subject, other than stock options and other contracts, commitments or
agreements between the Sellers and such persons in their capacities as
employees, officers or directors of Sellers.
22
<PAGE>
(r) Absence of Certain Business Practices. Except as set forth on
-------------------------------------
Section 5(r) of the Disclosure Schedule, to the Knowledge of Sellers, none of
the Sellers or any affiliate thereof, or any officer, director, employee or
agent of such company or such affiliate acting on behalf of such company or
affiliate, has made, directly or indirectly, any offer, payment, promise to pay,
or authorization of the payment of any money, or offer, gift, promise to give,
or authorization of the giving of anything of value to:
(i) any official or employee of a Governmental Body or a Sports
Body,
(ii) any political party or official thereof or any candidate
for political office, or
(iii) any customer, supplier, or competitor of the Sellers or any
employee, officer or director thereof,
in order to assist such company or affiliate in obtaining or retaining business
for or with, or directing business to, or obtaining a license of any
intellectual property from, any Person, not engaged in any other practice
(including but not limited to violation of any anti-trust law or law regulating
minority business enterprises), which in any case would subject the Sellers to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding or which would be grounds for the termination or modification of any
material contract, license or other instrument to which any of the Sellers is a
party. "Governmental Body" means any government or governmental or regulatory
body thereof, or political subdivision thereof, whether federal, state, local or
foreign, or any agency, instrumentality or authority thereof, or any court or
arbitrator (public or private). "Sports Body" means any body responsible for the
organization or oversight of any sport, whether professional or amateur, or
collectively representing the participants in such sport.
6. Covenants of Seller. Sellers covenant and agree as follows:
-------------------
(a) Access. Subject to Buyer's obligations under the Confidentiality
------
Agreement (as defined in Section 8(a) hereof), prior to the Closing, Sellers
will give Buyer and its officers, employees, agents and representatives
reasonable access, during normal business hours and upon reasonable notice, to
the personnel, properties, and Books and Records; provided, however, that (i)
-------- -------
such access shall not unreasonably disrupt the normal operations of Sellers or
their respective affiliates, (ii) neither Buyer nor any of its officers,
employees, agents or representatives shall have access to any personnel of
Sellers or their respective affiliates other than the employees identified
pursuant to Section 25 of this Agreement without Sellers' prior written consent,
which shall not be unreasonably withheld, and (iii) Sellers may excise from any
books and records to which Buyer and its officers, employees, agents and
representatives have access all information that does not relate to the
Business.
(b) Ordinary Conduct. Except as expressly contemplated by this
----------------
Agreement or as set forth on Section 6(b) of the Disclosure Schedule, from the
date hereof to the Closing, Sellers shall (i) conduct the Business in the
ordinary course in substantially the same manner as presently conducted, (ii)
maintain proper business and accounting records for the Business, and (iii) make
all reasonable efforts consistent with past practices to preserve the business
organization of the Business and relationships of the Business with its material
customers and suppliers, key employees and others with whom it has a material
business relationship and without limiting the generality of the foregoing
Sellers shall not (except with the
23
<PAGE>
prior written consent of Buyer): (A) sell or transfer any of the Acquired
Assets, including, without limitation, Intellectual Property or other intangible
Acquired Assets, except sales in the ordinary course of the Business of
inventory or of immaterial amounts of other tangible personal property not
required in the Business; (B) mortgage, pledge, or encumber any of the
properties or assets of the Seller, except for Permitted Liens; (C) materially
amend, modify, or terminate any material Contract affecting the Business other
than in the ordinary course of the Business; or (D) make any increase in, or any
commitment to increase, the compensation payable to any of the Sellers'
officers, directors, employees or agents, other than routine increases made in
the ordinary course of the Business not exceeding the greater of seven percent
(7%) per annum or Five Thousand Dollars ($5,000) per annum for any of them
individually; or (vi) materially alter the manner of keeping its Books and
Records or the accounting practices therein reflected.
(c) Insurance. Sellers shall keep, or cause to be kept, all insurance
---------
policies of Sellers or Marvel relating to the Business, or substantially
equivalent replacements therefor, in full force and effect through the Closing.
(d) Delivery of Records. At the Closing or as soon thereafter as
-------------------
practicable, but in no event later than 30 days after the Closing Date, Sellers
will deliver or cause to be delivered to Buyer all Warranties, Purchase Orders,
Contracts, Licenses and Permits, and Books and Records included in the Assets,
subject to Sellers' retention rights provided in Section 1(a) hereof.
(e) Transfer of Intellectual Property. Immediately after the Closing,
---------------------------------
Buyer will own all of the Intellectual Property subject to the representations
and warranties of Section 5(g). At and following the Closing, Sellers shall
deliver or cause to be delivered instruments of assignment, assumption and
transfer of the Intellectual Property as may reasonably be requested by Buyer.
(f) Change of Name. As soon as is practicable after Closing, Sellers
--------------
shall change their organizational names to eliminate the use of the names
"Fleer" or "SkyBox" or any derivations thereof in their organizational names and
shall thereafter provide Buyer with reasonably satisfactory evidence thereof
and, except as otherwise provided herein, shall not thereafter use such word or
any derivations thereof in its organizational name.
(g) Bank Accounts. Sellers shall use their reasonable best efforts to
-------------
cause Seller's bank accounts existing immediately prior to the Closing Date to
be transferred to Buyer on the Closing Date, including providing Buyer as the
sole signatory on such accounts.
(h) Covenant Not to Compete.
-----------------------
(i) Subject to the Closing having occurred, without the prior
written consent of Buyer, neither Sellers, Marvel or any subsidiary of
Marvel (the "Non-Compete Group") will, directly or indirectly (whether
through any partnership of which it or any such person is a member, through
any trust in which it or any such person is a beneficiary or trustee, or
through a corporation or other association in which it or any such person
has any interest, legal or equitable, or in any other capacity whatsoever),
engage in any business competitive with the Business as conducted on the
Closing Date in any county or any other political subdivision of any state
of the United States of America or of any other country in the world where
the Sellers conduct its Business as of the Closing Date; provided, however,
-------- -------
that nothing in this Section 6(h) shall be
24
<PAGE>
construed to prevent Marvel from licensing its characters in any manner,
including without limitation, for trading and/or entertainment card
purposes. This covenant not to compete shall extend for a period of three
(3) years from the Closing Date, or until such earlier time as Buyer, its
successors or assigns, shall cease to carry on or have an interest in the
Business and the Acquired Assets acquired hereunder.
(ii) Sellers on behalf of themselves and the Non-Compete Group
acknowledge that they intend that the Non-Compete Group shall fully and
effectively convey to Buyer all rights to be transferred to Buyer pursuant
to Section 1(a)(vii) hereof, including, without limitation, each process,
invention, trade secret, formula and other item of know-how relating to the
Business. Accordingly, notwithstanding the expiration of the covenant not
to compete set forth in this Section 6(h), at all times thereafter the Non-
Compete Group shall keep confidential and shall not disclose to others any
proprietary rights and shall not use or permit to be used any proprietary
rights; provided, however, that such proprietary rights do not include
-------- -------
information which (i) was generally available to the public other than as a
result of a disclosure by any member of the Non-Compete Group in violation
of this Agreement, (ii) was independently developed after the Closing Date
by the Non-Compete Group or becomes known after the Closing Date to any
member of the Non-Compete Group or any of their respective directors or
officers, or (iii) is or becomes available to any member of the Non-Compete
Group or any of their respective directors or officers by a third party
having a lawful right to disclose such information.
(iii) The parties hereto agree that the duration and area for
which the covenant not to compete set forth in this Section 6(h) is to be
effective are reasonable. In the event that any court of competent
jurisdiction determines that the time period or the area, or both of them,
are unreasonable and that such covenant is to that extent unenforceable,
the parties hereto agree that the covenant shall remain in full force and
effect for the greatest time period and in the greatest area that would not
render it unenforceable. The parties intend that this covenant shall be
deemed to be a series of separate covenants, one for each and every county
of each and every state of the United States of America and each and every
political subdivision of each and every county outside the United States of
America where this covenant is intended to be effective. Sellers on behalf
of themselves and the Non-Compete Group agree that damages are an
inadequate remedy for any breach of this covenant and that Buyer shall,
whether or not it is pursuing any potential remedies at law, be entitled to
equitable relief in the form of preliminary and permanent injunctions upon
any actual or threatened breach of this covenant.
(iv) The parties hereto acknowledge that the covenant not to
compete set forth in this Section 6(h) has not been bargained for separate
and apart from the Purchase Price to be paid for the Acquired Assets and
that no part of such Purchase Price is allocable to such covenant not to
compete.
(i) Real and Personal Property Adjustments After the Closing Date.
-------------------------------------------------------------
Real estate and personal property taxes with respect to the Acquired Assets to
be conveyed to Buyer pursuant hereto shall be prorated through the Closing Date.
7. Representations and Warranties of Buyer. Buyer hereby represents
---------------------------------------
and warrants to Sellers that the statements contained in this Section 7 are true
and correct in all respects.
25
<PAGE>
(a) Organization and Authority of Buyer. Buyer is a limited liability
-----------------------------------
company duly organized, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania. Buyer has all power and authority necessary to
enter into this Agreement and to consummate the transactions contemplated
hereby. All acts and proceedings required to be taken to authorize the
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated hereby have been duly and
properly taken. This Agreement has been duly executed and delivered by Buyer.
Assuming due authorization, execution and delivery by Sellers of this Agreement,
this Agreement constitutes legal, valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and by general
principles of equity. The execution, delivery and performance by Buyer of this
Agreement do not, and the consummation by Buyer of the transactions contemplated
hereby will not, (i) conflict with, or result in any violation of, any provision
of the certificate of formation, operating agreement or other organizational
documents of Buyer, or (ii) conflict with, result in any violation of, or
constitute a default (or an event or condition which, with notice or lapse of
time or both, would constitute a default) under, or result in the termination of
or the acceleration of the maturity of any liability or obligation pursuant to,
any instrument, contract, commitment, agreement or arrangement to which Buyer or
any of its affiliates is a party or by which Buyer or any of its affiliates or
the property or assets of Buyer are bound, or any judgment, order, writ,
injunction or decree to which Buyer or any of its affiliates has been
specifically identified as subject, or any statute, law, ordinance, rule or
regulation applicable to Buyer, any of its affiliates or the property or assets
of Buyer (except where such conflict, violation, default, termination,
acceleration or Lien would not materially impair the ability of Buyer to
consummate the transactions contemplated hereby or have, individually or in the
aggregate, a material adverse effect on the business, assets, financial
condition or results of operations of Buyer, taken as a whole). Except for the
filing of premerger notification and report forms under the HSR Act, if
applicable, no material Government Approval of or with any Government Authority
is required to be obtained or made by or with respect to Buyer in connection
with the execution, delivery and performance by Buyer of this Agreement or the
consummation by Buyer of the transactions contemplated hereby or compliance by
Buyer with the terms hereof, other than those which if not obtained or made (A)
would not materially impair Buyer's ability to consummate the transactions
contemplated hereby or (B) would not, individually or in the aggregate, have a
material adverse effect on Buyer.
(b) Litigation; Decrees. Buyer is not specifically identified as a
-------------------
party subject to any material restrictions or limitations under any judgment,
order or decree of any Governmental Authority. There are no actions, lawsuits,
proceedings or investigations pending (with respect to which Buyer has been
served or otherwise notified) or, to the knowledge of Buyer, threatened against
Buyer by or before any Government Authority which, if decided adversely to
Buyer, would adversely affect the ability of Buyer to consummate the
transactions contemplated hereby or have, individually or in the aggregate, a
material adverse effect on the business, assets, financial condition or results
of operations of Buyer, taken as a whole.
(c) Availability of Funds. Buyer has sufficient funds on hand, or
---------------------
access to sufficient funds, to consummate the transactions contemplated hereby
without any financing whatsoever.
(d) HSR Act. No filing will be required under the HSR Act for the
-------
transactions contemplated hereby.
26
<PAGE>
(e) Broker's Fees. There are no brokerage commissions, finder's or
-------------
agent's fees or similar fees or commissions payable in connection with the
transaction contemplated by this Agreement based on any agreement, arrangement
or understanding with Buyer, or any action taken by or on behalf of Buyer.
8. Covenants of Buyer.
------------------
(a) Confidentiality Agreement. Buyer acknowledges that the
-------------------------
information being provided to it by Sellers is subject to the terms of a
confidentiality agreement between Buyer and Marvel dated November 20, 1998 (the
"Confidentiality Agreement"), the terms of which are incorporated herein by
reference. The Confidentiality Agreement shall remain in effect after the
Closing as to all confidential information that does not relate to the Business.
(b) Buyer Cooperation. Following the Closing Date, upon the written
-----------------
request of Sellers or Marvel, Buyer shall, and shall cause its affiliates,
officers, employees, agents and representatives to, reasonably assist (i)
Sellers and Marvel in defending against or objecting to any Bankruptcy Claims,
and (ii) the Avoidance Litigation Trustee (as defined in the Plan) and the MAFCO
Litigation Trustees (as defined in the Plan), as applicable, in prosecuting
Litigation Claims (as defined in the Plan) to the extent and only to the extent
that Seller or Marvel are obligated to assist the Avoidance Litigation Trustee
and the MAFCO Litigation Trustee pursuant to the Plan. Buyer hereby agrees that
following the Closing Date it will take all reasonable precautions and actions,
including, without limitation, such precautions as Buyer employs with respect to
its own books and records, to avoid the destruction or damage to the Books and
Records of Sellers until the final resolution of all Bankruptcy Claims and
Litigation Claims. Sellers shall provide Buyer and its affiliates, officers,
employees, agents and representatives with reasonable notice under the
circumstances within which to provide such assistance. Sellers agree to
reimburse Buyer and its affiliates, officers, employees, agents and
representatives for their reasonable and documented out-of-pocket expenses (and
reasonable reimbursement for the time of senior employees of Buyer pursuant to
which extraordinary demands have been placed upon such senior employees in
accordance with this Section 8(b)) incurred in connection with providing such
assistance.
(c) Assignment. Buyer acknowledges that it has executed this
----------
Agreement as the sole general partner to a newly formed limited partnership.
Buyer agrees that it shall assign its rights hereunder to such limited
partnership.
9. Mutual Covenants. Each of Sellers and Buyer covenants and
----------------
agrees as follows:
(a) Reasonable Best Efforts. Subject to the terms and conditions of
-----------------------
this Agreement, each of the parties hereto shall use its reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable consistent with applicable laws and
regulations to satisfy all conditions to Closing set forth in this Agreement
that are within such parties' control at the earliest practicable date
thereafter, provided, however, that nothing in this Agreement shall obligate
-------- -------
Buyer, Sellers, Marvel, or any of their respective affiliates to sell, transfer
or otherwise dispose of any of their respective assets to cause a termination of
any applicable waiting period under the HSR Act. In addition, Sellers agree to
use reasonable best efforts to assist Buyer in providing information, including
financial information as reasonably requested by Buyer, relating to the Acquired
Assets, the Assumed Liabilities and the Business to bank lenders to Buyer and
its affiliates in connection with the transactions contemplated by this
Agreement. Prior to the Closing Date, Sellers agree to provide Buyer with (i)
27
<PAGE>
reviewed financial statements of Sellers prepared by Ernst & Young for the three
months ended December 31, 1998, and (ii) reviewed financial statements of
Sellers prepared by Ernst & Young for the nine months ended December 31, 1998.
(b) Consents. Without limiting the generality of Section 9(a) hereof,
--------
each of the parties hereto shall use its reasonable best efforts to obtain all
licenses, permits, authorizations, consents and approvals of all third parties
and Government Authorities, including without limitation, those required under
the HSR Act, if any, necessary in connection with the consummation of the
transactions contemplated by this Agreement prior to the Closing.
Notwithstanding the foregoing or Section 9(a) hereof, except for the fee to be
paid for the filing of premerger notification and report forms under the HSR
Act, if any, which fee will be paid by Buyer, neither Buyer nor Sellers shall
have any obligation to commence any litigation or pay any fee or offer or grant
any other financial accommodation to any third party for the purpose of
obtaining any such license, permit, authorization, consent or approval or pay
any costs and expenses of any third party resulting from the process of
obtaining any such license, permit, authorization, consent or approval. Each of
the parties hereto shall make or cause to be made all filings and submissions
under laws and regulations applicable to it or them as may be required for the
consummation of the transactions contemplated by this Agreement, including
without limitation, those required under the HSR Act, if any. In addition,
Sellers and Buyer will each use their reasonable best efforts, and will
cooperate fully with each other to cause a termination of any applicable waiting
period under the HSR Act without the entry by a court of competent jurisdiction
of an order enjoining the consummation of the transactions contemplated hereby
at as early a date as possible. Buyer and Sellers shall coordinate and cooperate
with each other in exchanging such information and assistance as any of the
parties hereto may reasonably request in connection with the foregoing.
(c) Publicity. Effective from the date of this Agreement, Sellers and
---------
Buyer agree that no public release or announcement concerning the transactions
contemplated hereby shall be issued by either party prior to the Closing without
the prior written consent of the other party, except as such release or
announcement may be required by law or the rules or regulations of any United
States or foreign securities exchange, in which case the party required to make
the release or announcement shall, if practicable under the circumstances, allow
the other party reasonable time to comment on such release or announcement in
advance of such issuance.
(d) Disclosure Supplements. From time to time prior to the Closing,
----------------------
Sellers and Buyer will promptly supplement or amend the Disclosure Schedule with
respect to any matter which would make any representation or warranty set forth
in Section 5 or Section 7, as the case may be, inaccurate if updated immediately
prior to the Closing or as is necessary to correct any information in the
Disclosure Schedule or in any representation or warranty of Sellers or Buyer
made in Section 5 or Section 7, as the case may be. For purposes of determining
the fulfillment of the conditions set forth in Section 4(a)(i) or Section
4(b)(i), as the case may be, as of the Closing and the accuracy of the
representations and warranties contained in Section 5 or Section 7, as the case
may be, if the Closing does not occur, the Disclosure Schedule shall be deemed
to include only that information contained therein on the date of this Agreement
and shall be deemed to exclude any information contained in any subsequent
supplement or amendment thereto. However, for purposes of determining the
accuracy of the representations or warranties of Sellers or Buyer contained in
Section 5 or Section 7, as the case may be, or the liability of Sellers or Buyer
with respect thereto under Section 11(b) or Section 11(c), as the case may be,
should the Closing occur, the Disclosure Schedule shall be deemed to include all
information contained in any subsequent supplement or amendment thereto.
28
<PAGE>
(e) Agreement to Negotiate License Arrangement. (i) For a period of
------------------------------------------
thirty (30) days immediately following the Closing Date (the "License
Negotiation Period"), Marvel will negotiate in good faith with Buyer on an
exclusive basis a license agreement (the "Marvel License Agreement") pursuant to
which Marvel would grant a license right to Buyer to utilize certain characters
and properties of Marvel in which Marvel owns copyrights, trademarks or
tradenames, solely upon and in connection with the sale and distribution of
"standard size" character-identified ink-on-paper trading cards (the "Trading
Cards"), subject to terms and conditions to be mutually agreed upon between
Marvel and Buyer. Nothing contained in this paragraph shall be construed to
obligate Marvel or Buyer to enter into or execute such Marvel License Agreement.
Unless the Marvel License Agreement is entered into, Buyer shall have no right
with respect to any such characters or properties and no such rights shall be
included in the Assets. During the License Negotiation Period, Marvel will not
to enter into any negotiations with any third party other than Buyer concerning
such a license agreement.
(ii) If Marvel and Buyer shall not have entered into and executed the
Marvel License Agreement within the License Negotiation Period, Buyer shall have
the right to dispose on a non-exclusive basis of its then existing inventory (on
hand or in process) of Trading Cards; provided that such disposal shall be
conducted in accordance with the terms and conditions set forth in Section
9(e)(ii) of the Disclosure Schedule attached hereto.
(f) Settlement of Avoidance Litigation Claims. Following the Closing
-----------------------------------------
Date, Marvel shall, if directed by Buyer, exercise its rights under Section 7.2
of the Plan solely with respect to claims against any person or entity which is
a provider of goods or services to the Business or party to any licensing
agreement with Sellers relating to the Business as of the Closing Date;
provided, that Marvel shall not be obligated to comply with such direction of
- - --------
Buyer if such action would, in the discretion of Marvel, have a material adverse
effect on the business of Marvel.
(g) Cooperation. Sellers and Buyer shall cooperate fully with each
-----------
other and make available or cause to be made available to each other for
consultation, inspection and copying in a timely fashion such personnel, Tax
returns, files, books and records, documents and other information as may be
reasonably requested (i) for the preparation of any Tax return, election,
consent or certificate required to be prepared or filed by Sellers or Buyer (or
their respective affiliates) or (ii) in connection with any audit or proceeding
relating to Taxes, and the requesting party shall pay any reasonable out-of-
pocket expenses incurred in connection therewith. Sellers and Buyer shall retain
all Tax returns, schedules and workpapers, and all material records or other
documents relating thereto, until the expiration of the statute of limitations
(including any waivers or extensions thereof) of the taxable periods to which
such Tax returns or other documents relate.
10. Employees and Employee Benefits.
-------------------------------
(a) Offers of Employment. Buyer will offer employment, effective
--------------------
immediately after the Closing, to all active employees of Sellers. The employees
of Sellers or any affiliate of Sellers who become employees of Buyer are
referred to in this Section 10 as the "Employees". Buyer shall grant all
Employees credit for all service with Sellers and their affiliates and their
respective predecessors prior to the Closing Date for purposes of eligibility,
vesting, and benefit differential determined on the basis of
29
<PAGE>
length of service under any benefit plan maintained or contributed to by Buyer
(or any affiliate of Buyer) that covers any such Employees.
(b) Continuation of Participation in Sellers' Plans. Buyer and
-----------------------------------------------
Sellers agree that for a period of commencing on the Closing Date and continuing
for the remainder of the month in which the Closing occurs and continuing for a
period of one month thereafter, or, if sooner with respect to any plan, until
the establishment by Buyer of its own comparable medical plan or decision not to
provide such coverage and notification thereof to Sellers by Buyer, Buyer (or
any affiliate of Buyer) shall, for the benefit of the Employees (and their
spouses, dependents and family members), including any Employee or covered
dependent who is a qualified beneficiary entitled to coverage under Section
4980B of the Code or Sections 601 through 608 of ERISA, participate in each
Employee Welfare Benefit Plan (as such term is defined under Section 3(1) of
ERISA) listed in Section 10(b) of the Disclosure Schedule sponsored or
maintained by one or more of the Sellers under which any of the Employees
benefitted on or prior to the Closing Date. In consideration, Buyer (or any
affiliate of Buyer) shall pay to Sellers the amounts set forth as follows. For
benefits covered by insurance, Buyer (or any affiliate of Buyer) will pay to
Sellers an amount equal to the per-individual (or per-family, as appropriate)
cost of the related premiums for the period after the Closing Date during which
the Employees (or any of their spouses, dependents or family members)
participate under such Plans, multiplied by the number of such individuals (or
families, as appropriate) participating under the appropriate Employee Welfare
Benefit Plans during such period. For benefits which are self-insured, Buyer (or
any affiliate of Buyer) will pay to Sellers an amount equal to one hundred and
five percent (105%) of the actual costs incurred by one or more of the Sellers
of maintaining such programs during the period after the Closing Date which
Buyer (or any affiliate of Buyer) participates under the appropriate programs
multiplied by a fraction, the numerator of which is the number of Employees (and
their spouses, dependents and family members) participating under each such
program during such period and the denominator of which is the average number of
all individuals participating under such program during such period.
(c) COBRA. Buyer (or any affiliate of Buyer), or any plan maintained
-----
by Buyer (or by any affiliate of Buyer), at Buyer's cost (or at the cost of any
affiliate of Buyer), will provide continued health and medical coverage as
required under Section 4980B of the Code, Part 6 of Title I of ERISA or any
other applicable federal, state or local law or ordinance to all Employees (and
their spouses, dependents and beneficiaries) with respect to whom a "qualifying
event" (as such term is defined under Sections 4980B(f)(3) of the Code or 603 of
ERISA) or other triggering event described under the applicable federal, state
or local laws or ordinances occurred after the Closing Date.
(d) 401(k) Plan. The following is hereby agreed with respect to the
-----------
cash-or-deferred profit sharing plan listed on Section 5(k)(i) of the Disclosure
Schedule (the "Marvel 401(k) Plan"):
(i) As soon as practicable after the Closing Date, Buyer
(or any affiliate of Buyer or a limited partnership of which Buyer is the sole
general partner) will adopt a cash-or-deferred profit sharing plan (the "New
401(k) Plan") under the applicable sections of the Code. If necessary, and as
soon as practicable thereafter, but in any event within the remedial amendment
period for the applicable plan year of the New 401(k) Plan, Buyer (or any
affiliate of Buyer or a limited partnership of which Buyer is the sole general
partner) will cause the New 401(k) Plan and related funding arrangement to be
submitted to the IRS for a determination letter providing that the new 401(k)
Plan and related funding arrangement are qualified under the applicable
provisions of the Code and will take all action required by
30
<PAGE>
the IRS (including the adoption of plan amendments) as a condition to issuing
such favorable determination.
(ii) As soon as practicable following the Closing Date, but
following the adoption of the New 401(k) Plan and subject to all IRS notice
requirements, Sellers (or the parent of Sellers) will direct the trustee of the
trust related to Marvel 401(k) Plan to effectuate a transfer to the trustee of
the New 401(k) Plan of amounts, in cash equal to the aggregate total account
balances for all Employees who are employed by Buyer as of such date, the amount
of such account balances being determined as of the valuation date occurring on,
or immediately prior to, the date of such transfer. Buyer and Sellers will
cooperate in the filing of all documents required in connection with the
transfer of assets described herein.
(e) No Third Party Beneficiaries. Without limiting the generality of
----------------------------
Section 14, the preceding subsections of this Section 10 shall not confer any
rights or remedies upon any employee of Sellers, its affiliates or Buyer or any
other person other than the parties and their respective successors and assigns.
11. Indemnification.
---------------
(a) Survival of Representations. The representations and warranties
---------------------------
in this Agreement and in any other document delivered in connection herewith
shall survive the Closing Date until April 30, 2000; provided, however, that the
representations and warranties made by Sellers set forth in Sections 5(c) and
5(k) hereof shall survive the Closing Date until the expiration of all
applicable statutes of limitation with respect to claims made with respect
thereto. The covenants in this Agreement shall survive the Closing Date.
(b) Sellers' Agreement to Indemnify. Upon the terms and subject to
-------------------------------
the conditions of this Section 11, Sellers and Marvel shall, jointly and
severally, indemnify and hold harmless Buyer and its affiliates (collectively,
the "Buyer Group"), from and after the Closing, from and against any and all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses (collectively, "Damages"), resulting to, imposed
upon or incurred by the Buyer Group or any member thereof, directly or
indirectly, by reason of or resulting from:
(i) the breach of, or any inaccuracy of any representation or
warranty of Sellers contained in this Agreement (giving effect to any
notices given by the Sellers and any update or supplement to the Disclosure
Schedule delivered to Buyer at Closing);
(ii) the breach of any covenant or other agreement of Sellers
contained herein;
(iii) any Excluded Liabilities;
(iv) any Bulk Sales Act or similar law as provided in Section
11(g); and
(v) infringement claims or actions brought by the licensors to
the agreements set forth as Items 9, 10, 11 and 12 to Section 2(a)(x) of
the Disclosure Schedule.
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<PAGE>
(c) Buyer's Agreement to Indemnify. Upon the terms and subject to the
------------------------------
conditions of this Section 11, Buyer shall indemnify and hold harmless Sellers
and its affiliates (collectively, the "Seller Group"), at any time after the
Closing, from and against any and all Damages resulting to, imposed upon or
incurred by the Seller Group or any member thereof, directly or indirectly, by
reason of or resulting from:
(i) the breach or inaccuracy of any representation or warranty
of Buyer contained in this Agreement (giving effect to any notices given by
Buyer and any update or supplement to the Disclosure Schedule delivered to
Sellers at Closing);
(ii) the breach of any covenant or other agreement of Buyer
contained herein;
(iii) the Assumed Liabilities;
(iv) Contracts under which Buyer has received benefits pursuant
to Section 2(d) hereof; and
(v) the Worker Adjustment and Retraining Notification Act of
1988 as a result of the transactions contemplated by this Agreement.
(d) Monetary Limitation of Liability.
--------------------------------
(i) A claim for indemnity for Damages by the Buyer Group or any
member thereof under Section 11(b)(i) hereof shall be effective only after
the aggregate amount of all Damages suffered by members of the Buyer Group
of the type described in Section 11(b)(i) hereof exceeds $500,000 and then
only to the extent of such excess.
(ii) A claim for indemnity for Damages by the Seller Group or
any member thereof under Section 11(c)(i) hereof shall be effective only
after the aggregate amount of all Damages suffered by members of the Seller
Group of the type described in Section 11(c)(i) hereof exceeds $500,000 and
then only to the extent of such excess.
(iii) The aggregate liability of Sellers for claims by the Buyer
Group or any member thereof or by the Seller Group or any member thereof
for indemnity for Damages pursuant to Section 11(b)(i) or 11(c)(i) under
this Agreement is limited to $4,000,000.
(iv) The indemnifying party shall calculate in good faith any
net Tax benefit accruing to the indemnified party due to the occurrence of
Damages. The net Tax benefit, if any, shall be deducted from the Damages
otherwise payable by the indemnifying party to the indemnified party. In
the event all or any portion of the net Tax benefit deducted from the
Damages paid to the indemnified party is later denied by the Internal
Revenue Service (the "IRS"), the indemnifying party shall pay, in addition,
Damages in the amount of the net Tax benefit to the extent denied by the
IRS, plus interest thereon from the date the indemnifying party gives
notice to the indemnified party of the amount of such net Tax benefit to
the date of payment at the per annum IRS rate for Taxes past due in effect
from time to time during that period, as published in the IRS Bulletin. The
amount of any insurance proceeds received or receivable (and not subject
32
<PAGE>
to any dispute with the insurer) by the indemnified party to cover Damages
shall be deducted from the Damages otherwise payable by the indemnifying
party to the indemnified party.
(e) Conditions of Indemnification.
-----------------------------
(i) In the event that any person or entity not a party to this
Agreement (including a Government Authority) shall levy an assessment or
commence or file, or threaten to commence or file, any lawsuit or
proceeding, which pending or threatened lawsuit or proceeding or assessment
may result in any Damages subject to indemnification under this Agreement
(collectively, the "Proceedings"), then the indemnified party will give
prompt written notice of such Proceeding to the indemnifying party, and the
indemnifying party shall have the right to undertake the defense thereof by
representatives chosen by it; provided, however, that the failure to give
-------- -------
such prompt written notice shall not rescind or revoke the indemnifying
party's obligation to indemnify but shall only reduce the amount of the
indemnification to the extent that the indemnifying party is damaged by
such delay.
(ii) If the indemnifying party undertakes the defense of any
such Proceeding, (A) the indemnifying party will not be liable to the
indemnified party for legal or other expenses incurred by the indemnified
party in connection with such defense (other than as provided in the
following clause (B)), (B) the indemnified party shall, to the best of its
ability, assist the indemnifying party, at the expense of the indemnifying
party, in the defense of such Proceeding, and shall promptly send to the
indemnifying party, at the expense of the indemnifying party, copies of any
documents received by the indemnified party which relate to such
Proceedings and (C) the indemnified party shall have the right to
participate in the defense of such Proceeding, at its own cost and expense;
(iii) If the indemnifying party, within a reasonable time after
notice of any such Proceeding, fails to elect to defend the indemnified
party against which such Proceeding has been asserted, the indemnified
party shall (upon further notice to the indemnifying party) have the right
to undertake the defense, compromise or settlement of such Proceeding on
behalf of and for the account and risk of the indemnifying party, subject
to the right of the indemnifying party to assume the defense of such
Proceeding at any time prior to settlement, compromise or final
determination thereof; and
(iv) Anything in this Section 11 to the contrary
notwithstanding, whether or not the indemnifying party shall have assumed
the defense thereof, the indemnified party shall not, without the written
consent of the indemnifying party (which consent shall not be unreasonably
withheld or delayed), settle or compromise any Proceeding or consent to the
entry of any judgment.
(f) Other Limitations. Except as provided in Section 6(h)(iii)
-----------------
hereof, Buyer and Sellers acknowledge and agree that their sole and exclusive
remedies with respect to any and all claims relating to the subject matter of
this Agreement (including without limitation claims for breaches of
representations, warranties, covenants and agreements contained in this
Agreement) shall be pursuant to the indemnification provisions set forth in this
Section 11. In furtherance of the foregoing, Buyer and Sellers hereby waive, to
the fullest extent permitted under applicable law, any and all rights, claims
and causes of action of either of them against the other or any of their
respective affiliates as a matter of equity
33
<PAGE>
or under or based upon any federal, state, local or foreign statute, law,
ordinance, rule or regulation or arising under or based upon common law or
otherwise, except to the extent provided in this Section 11.
(g) Bulk Sales. It may not be practicable to comply or attempt to
----------
comply with the procedures of the "Bulk Sales Act" or similar law of any or all
of the States in which the Assets are situated or of any other state which may
be asserted to be applicable to the transactions contemplated hereby.
Accordingly, to induce Buyer to waive any requirements for compliance with any
or all of such laws (which Buyer hereby waives), Sellers hereby agree that,
except for Assumed Liabilities of Sellers, the indemnity provisions of Section
11 shall apply to any Damages incurred by Buyer arising out of or resulting from
the failure of Buyer or Sellers to comply with any such laws or any similar law
that may be asserted to be applicable and Sellers' obligations to indemnify
Buyer with respect to such Damages shall survive the Closing Date.
12. Further Assurances. From time to time after the Closing, as and
------------------
when requested by either party hereto, the other party shall execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to give
full effect to this Agreement.
13. Assignment. This Agreement and the rights hereunder shall not be
----------
assignable or transferable by Buyer or Sellers without the prior written consent
of the other party hereto; provided, however, that upon delivery of written
-------- -------
notice to Sellers, Buyer shall have the right to assign its rights under this
Agreement to any affiliates of Buyer or any limited partnership of which Buyer
is the sole general partner.
14. No Third-Party Beneficiaries. Except as expressly provided in
----------------------------
Section 10 with respect to affiliates of Buyer and Sellers, this Agreement is
for the sole benefit of the parties hereto and their successors and permitted
assigns, and nothing herein expressed or implied shall give or be construed to
give to any person, other than the parties hereto and such successors and
assigns, any legal or equitable rights hereunder.
15. Termination. (a) Anything contained herein to the contrary
-----------
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing:
(i) by mutual written consent of Sellers and Buyer;
(ii) by Sellers if any of the conditions set forth in Section
4(b) hereof shall have become incapable of fulfillment, and shall not have
been waived in writing by Sellers;
(iii) by Buyer if any of the conditions set forth in Section 4(a)
hereof shall have become incapable of fulfillment, and shall not have been
waived in writing by Buyer; or
(iv) by either party hereto, if the Closing does not occur on or
prior to March 1, 1999;
provided, however, that the failure to satisfy the conditions or consummate the
transactions contemplated by this Agreement did not result from the breach in
any material respect by the party seeking termination
34
<PAGE>
pursuant to clause (ii), (iii) or (iv) of any of its representations,
warranties, covenants or agreements contained in this Agreement.
(b) In the event of termination by Sellers or Buyer pursuant to this
Section 15, written notice thereof shall forthwith be given to the other party
and the transactions contemplated by this Agreement shall be terminated, without
further action by either party. If the transactions contemplated by this
Agreement are terminated as provided herein:
(i) Buyer shall return to Sellers all documents and other
material received from or on behalf of Sellers relating to the transactions
contemplated hereby, whether so obtained before or after the execution
hereof; and
(ii) all confidential information received by Buyer shall be
treated in accordance with the Confidentiality Agreement which shall remain
in full force and effect in accordance with the terms thereof
notwithstanding the termination of this Agreement.
(c) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 15, this Agreement shall
become void and of no further force and effect, except for the provisions of (i)
Section 8(a) hereof relating to the obligation of Buyer to keep confidential
certain information and data obtained by it from Seller, (ii) Section 16 hereof
relating to certain expenses, (iii) Section 9(e) hereof relating to publicity,
and (iv) this Section 15. Nothing in this Section 15 shall be deemed to release
either party from any liability for any breach by such party of the terms and
provisions of this Agreement.
16. Expenses. Whether or not the transactions contemplated hereby are
--------
consummated, and except as otherwise provided in this Agreement, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs or expenses;
provided, however, that following the Closing, Sellers shall be reimbursed by
- - -------- -------
Buyer for the fees and expenses of its outside counsel incurred in connection
with the transactions contemplated by this Agreement, in an amount not to exceed
$100,000, within thirty days of the delivery to Buyer by Sellers of a copy of
one or more written bills for such services; provided, further, that Buyer shall
-------- -------
pay the fee to be paid for the filing of the premerger and notification forms
under the HSR Act, if any, with respect to the transactions contemplated hereby.
17. Amendments. No amendment to this Agreement shall be effective
----------
unless it shall be in writing and signed by all parties hereto.
18. Notices. All notices or other communications required or
-------
permitted to be given hereunder shall be in writing and shall be delivered by
hand, or sent by telecopy, or sent, postage prepaid, by United States
registered, certified or express mail, or reputable overnight courier service,
and shall be deemed given, if delivered by hand, when so delivered, or if sent
by facsimile, when received, or if sent by mail, three business days after
mailing (two business days in the case of express mail), or if sent by overnight
courier service, one business day after delivery to such service, as follows:
35
<PAGE>
(i) if to Sellers, to:
Fleer Corp.
685 Third Avenue
New York, New York 10017
Attention: Tuck Hardie, Esq.
Facsimile No.: 212-682-5872
with a copy to:
Battle Fowler LLP
75 East 55th Street
New York, NY 10022
Attention: John N. Turitzin, Esq.
Facsimile No.: 212-856-7814
(ii) if to Buyer, to:
Golden Cycle, LLC
4025 Crooked Hill Road
Harrisburg, PA 17110
Attention: Alexander Grass
Facsimile No.: (717) 214-8585
with a copy to:
Wolf, Block, Schorr & Solis-Cohen LLP
Twelfth Floor, Packard Building
111 South 15th Street
Philadelphia, PA 19102-2678
Attention: Herbert Henryson, Esq.
Facsimile No.: 215-977-2740
Either party hereto may change the address to which notices and other
communications are to be delivered or sent by giving the other party notice in
the manner herein set forth.
19. Interpretation. In this Agreement, the Disclosure Schedule and
--------------
any exhibits annexed hereto:
(a) words denoting the singular include the plural and vice versa and
words denoting any gender include all genders;
(b) the word "including" shall mean "including without limitation";
(c) the word "affiliate" shall have the meaning set forth in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as amended;
36
<PAGE>
(d) the word "business day" shall mean any day other than a Saturday,
Sunday or a day on which banks in the City of New York are generally closed for
business.
(e) the word "person" shall mean an individual, partnership, joint
venture, corporation, limited liability company, trust, unincorporated
organization, government, or governmental department or agency;
(f) the use of headings is for convenience of reference only and
shall not affect the meaning or interpretation of this Agreement, the Disclosure
Schedule or any exhibits annexed hereto;
(g) when calculating the period of time within which or following
which any act is to be done or step taken, the date which is the reference day
in calculating such period shall be excluded and, if the last day of such period
is not a business day, the period shall end on the next day which is a business
day;
(h) all dollar amounts are expressed in United States funds; and
(i) unless otherwise expressly provided herein or therein, money
shall be tendered hereunder by wire transfer of immediately available federal
funds to the account designated in writing by the party that is to receive such
money.
20. Counterparts. This Agreement may be executed in counterparts, all
------------
of which shall be considered one and the same agreement, and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other party.
21. Entire Agreement. This Agreement (including the Disclosure
----------------
Schedule and the Exhibits annexed hereto) and the Confidentiality Agreement
contain the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
22. Severability. If any provision of this Agreement or the
------------
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
23. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such state, without regard
to the conflicts of law principles of such state. The parties hereto hereby
irrevocably submit to the jurisdiction of the United States District Court for
the Southern District of New York (or, if subject matter jurisdiction in that
court is not available, in any state court located within the City of New York)
over any dispute arising out of or relating to this Agreement or any of the
transactions contemplated hereby and each party hereby irrevocably agrees that
all claims in respect of such dispute or proceeding shall be heard and
determined in such court. The parties hereby irrevocably waive, to the fullest
extent permitted by applicable law, any objection which they may now or
hereafter have to the laying of venue of any such dispute brought in such court
or any defense of inconvenient forum.
37
<PAGE>
24. Disclosure Schedule. Matters reflected in the Disclosure Schedule
-------------------
are not necessarily limited to matters required by this Agreement to be
reflected in the Disclosure Schedule. Such additional matters are set forth for
informational purposes only and do not necessarily include any other matters of
a similar nature. Items disclosed in any one Section of the Disclosure Schedule
are deemed to be disclosed in such other Sections of the Disclosure Schedule as
is necessary for purposes of the completeness and accuracy of the related
representation or warranties, but only to the extent it is readily apparent from
the description of the particular item or disclosure that such item or
disclosure would be applicable to such other such Section of the Disclosure
Schedule.
25. Related to the Business. For all purposes of this Agreement, the
-----------------------
phrase "related to the Business" shall mean related to, used in or necessary to
the conduct of the Business as conducted by Sellers on the date of this
Agreement or immediately prior to the Closing, as the context may require.
26. Knowledge. For all purposes of this Agreement, "Knowledge" of
---------
Sellers or a similar phrase shall mean the actual knowledge of facts or other
information of the senior officers of Sellers, William Hardie and David Fremed.
38
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
FLEER CORP.
By: /s/ WILLIAM H. HARDIE, III
----------------------------------
Name:
Title:
FRANK H. FLEER CORP.
By: /s/ WILLIAM H. HARDIE, III
----------------------------------
Name:
Title:
SKYBOX INTERNATIONAL, INC.
By: /s/ WILLIAM H. HARDIE, III
----------------------------------
Name:
Title:
GOLDEN CYCLE, LLC
By /s/ ROGER GRASS
------------------------------------
Name: Roger Grass
Title: Vice President
Marvel Enterprises, Inc. hereby unconditionally guarantees all of the
obligations and covenants of the Sellers set forth in this Agreement and agrees
to be bound by Sections 6(h), 9(e), 9(f) and 11(b) hereof.
MARVEL ENTERPRISES, INC.
By /s/ WILLIAM H. HARDIE, III
----------------------------------
Name:
Title:
Each of Alexander Grass and Roger Grass, jointly and severally, hereby
unconditionally guarantees the obligations of Buyer solely with respect to (i)
Buyer's (or its assignee's) obligations under this Agreement to consummate the
transactions contemplated hereby and (ii) any of the actions required to by
taken by Buyer (or its assignee) pursuant to Sections 8(a) and 9 (exclusive of
Section 9(e)) of this Agreement.
/s/ ALEXANDER GRASS /s/ ROGER GRASS
- - -------------------------- --------------------------
Alexander Grass Roger Grass
39
<PAGE>
EXHIBIT 3.2
EFFECTIVE
OCTOBER 1, 1998
MARVEL ENTERPRISES, INC.
BY-LAWS
(as restated and amended)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. OFFICES......................................................... 1
Section 1.1. Registered Office....................................... 1
Section 1.2. Other Offices........................................... 1
ARTICLE 2. MEETINGS OF STOCKHOLDERS........................................ 1
Section 2.1. Place of Meetings....................................... 1
Section 2.2. Annual Meetings......................................... 1
Section 2.3. Special Meetings........................................ 2
Section 2.4. Notice of Meetings...................................... 2
Section 2.5. Quorum.................................................. 2
Section 2.6. Notice of Stockholder Business and
Nominations............................................. 4
Section 2.7. Organization............................................ 6
Section 2.8. Voting.................................................. 6
Section 2.9. No Stockholder Action by Written Consent................ 8
Section 2.10. Inspectors.............................................. 8
Section 2.11. List of Stockholders.................................... 8
ARTICLE 3. BOARD OF DIRECTORS.............................................. 9
Section 3.1. Number of Directors..................................... 9
Section 3.2. General Powers.......................................... 9
Section 3.3. Election of Directors . . . . . . . . . ................ 11
Section 3.4. Tenure and Qualifications............................... 11
Section 3.5. Quorum and Manner of Acting............................. 11
Section 3.6. Action by Communications Equipment...................... 11
Section 3.7. Offices, Place of Meeting and Records................... 11
Section 3.8. Annual Meeting.......................................... 12
Section 3.9. Regular Meetings........................................ 12
Section 3.10. Special Meetings; Notice................................ 12
Section 3.11. Organization............................................ 12
Section 3.12. Order of Business....................................... 13
Section 3.13. Removal of Directors.................................... 13
Section 3.14. Resignation............................................. 13
Section 3.15. Vacancies............................................... 13
Section 3.16. Compensation............................................ 14
Section 3.17. Interested Directors.................................... 14
ARTICLE 4. ACTION BY CONSENT............................................... 14
Section 4.1. Consent by Directors.................................... 14
Section 4.2. Consent by Stockholders................................. 15
ARTICLE 5. OFFICERS........................................................ 15
Section 5.1. Number.................................................. 15
Section 5.2. Election, Qualifications and
Term of Office.......................................... 15
Section 5.3. Removal................................................. 15
Section 5.4. Resignation............................................. 15
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 5.5. Vacancies............................................... 16
Section 5.6. Chairman of the Board................................... 16
Section 5.7. Chief Executive Officer................................. 16
Section 5.8. President............................................... 16
Section 5.9. Chief Financial Officer................................. 16
Section 5.10. Treasurer............................................... 17
Section 5.11. Secretary............................................... 17
Section 5.12. Other Officers.......................................... 17
Section 5.13. Salaries................................................ 18
ARTICLE 6. INDEMNIFICATION, ETC............................................ 18
Section 6.1. Indemnification and Advances of Expenses................ 18
Section 6.2. Employees and Agents.................................... 19
Section 6.3. Repeal or Modification.................................. 19
Section 6.4. Other Indemnification................................... 19
ARTICLE 7. CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC................... 20
Section 7.1. Execution of Contracts.................................. 20
Section 7.2. Loans................................................... 20
Section 7.3. Checks, Drafts, etc..................................... 20
Section 7.4. Deposits................................................ 21
Section 7.5. Proxies in Respect of Securities of
Other Corporations...................................... 21
ARTICLE 8. BOOKS AND RECORDS............................................... 21
Section 8.1. Place................................................... 21
Section 8.2. Addresses of Stockholders............................... 21
Section 8.3. Record Dates............................................ 22
Section 8.4. Audit of Books and Accounts............................. 22
ARTICLE 9. SHARES AND THEIR TRANSFER....................................... 22
Section 9.1. Certificates of Stock................................... 22
Section 9.2. Record.................................................. 23
Section 9.3. Transfer of Stock....................................... 23
Section 9.4. Transfer Agent and Registrar; Regulations............... 23
Section 9.5. Lost, Destroyed or Mutilated Certificates............... 23
ARTICLE 10. SEAL............................................................ 24
ARTICLE 11. FISCAL YEAR..................................................... 24
ARTICLE 12. NOTICE.......................................................... 24
Section 12.1. Delivery of Notices..................................... 24
Section 12.2. Waivers of Notice....................................... 25
ARTICLE 13. AMENDMENTS...................................................... 25
Section 13.1. By-Laws................................................. 25
ARTICLE 14. DIVIDENDS....................................................... 25
</TABLE>
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<PAGE>
MARVEL ENTERPRISES, INC.
By-Laws
(as restated and amended)
ARTICLE 1.
OFFICES
-------
Section 1.1. Registered Office. The registered office and
-----------------
registered agent of the Corporation in the State of Delaware shall be as set
forth in the Corporation's Certificate of Incorporation.
Section 1.2. Other Offices. The Corporation may also have an office
-------------
at such other place or places either within or without the State of Delaware
from time to time as the Board of Directors may determine or the business of the
Corporation may require.
ARTICLE 2.
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1. Place of Meetings. All meetings of the stockholders of
-----------------
the Corporation shall be held at such place either within or without the State
of Delaware as may be designated from time to time by the Board of Directors.
Section 2.2. Annual Meetings.
---------------
(a) The annual meeting of the stockholders for the election of
directors and for the transaction of such other business as may properly come
before the meeting shall be held at such date, time and place either within or
without the State of Delaware, as may be designated by the Board of Directors
from time to time.
(b) In respect of the annual meeting for any particular year the
Board of Directors may, by resolution fix a different day, time or place (either
within or without the State of Delaware) for the annual meeting.
(c) If the election of directors shall not be held on the day fixed
by the Board for any annual meeting, or on the day of any adjourned session
thereof, the Board of Directors shall
<PAGE>
cause the election to be held at a special meeting as soon thereafter as
conveniently may be. At such special meeting, the stockholders may elect the
directors and transact such other business properly before the meeting with the
same force and effect as at an annual meeting duly called and held.
Section 2.3. Special Meetings. A special meeting of the
----------------
stockholders for any purpose or purposes may be called at any time or from time
to time by the Chief Executive Officer or Chairman of the Board, and shall be
called at any time or from time to time at the request in writing of a majority
of the total number of directors in office. A special meeting shall also be
called by the Chief Executive Officer or the Secretary upon the written request
of not less than 15% in interest of the Stockholders entitled to vote thereat.
At any special meeting, no business shall be transacted and no corporate action
shall be taken other than as stated in the notice of the meeting.
Section 2.4. Notice of Meetings.
------------------
(a) Except as otherwise required by law or the Certificate of
Incorporation, written notice of each annual or special meeting of the
stockholders shall be given to each stockholder of record entitled to vote at
such meeting not less than ten days nor more than sixty days before the date of
such meeting. Every such notice shall state the date, time and place of the
meeting and, in case of a special meeting, shall state briefly the purposes
thereof.
(b) Attendance of a stockholder at a meeting, in person or by proxy,
shall constitute a waiver of notice of such meeting, except when such
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the meeting is not lawfully called or convened. Notice of any adjourned meeting
of the stockholders shall not be required to be given except by announcement at
the meeting so adjourned or when expressly required by law.
Section 2.5. Quorum.
------
(a) At each meeting of the stockholders, except where otherwise
provided by law, the Certificate of Incorporation or these By-Laws, the holders
of record of a majority in voting power of the issued and outstanding shares of
stock of the Corporation entitled to vote at such meeting, present in person or
represented by proxy, shall be required to constitute a quorum for the
transaction of business. Where a separate vote by class or classes or one or
more series of a class or classes of stock is required by law or the Certificate
of Incorporation for any matter, the holders of a majority in voting power of
the issued
-2-
<PAGE>
and outstanding shares of each such class or classes or one or more series of a
class or classes entitled to vote, present in person or represented by proxy,
shall be required to constitute a quorum with respect to a vote on that matter,
except that where the unanimous affirmative vote or written consent of all of
the holders of the outstanding shares of a class or classes of stock is required
by the Certificate of Incorporation with respect to any matter, all of the
holders of the outstanding shares of such class or classes entitled to vote,
present in person or by proxy, shall be required to constitute a quorum with
respect to a vote on that matter. For purposes of these By-Laws, the term "total
voting power" shall mean, (a) in the case of matters which do not require a
separate vote by class or classes or one or more series of a class or classes of
stock, the aggregate number of votes which all of the shares of stock, excluding
the votes of shares of stock having such entitlement only upon the happening of
a contingency, would be entitled to cast in the election of directors to the
Board of Directors, if all such shares of stock were present at a meeting of the
Corporation's stockholders for the purpose of the election of directors, and (b)
in the case of matters which do require a separate vote by class or classes or
one or more series of a class or classes of stock, the aggregate number of votes
which all of the shares of such class or classes or one or more series of a
class or classes of stock, excluding the votes of shares of stock having such
entitlement only upon the happening of a contingency, would be entitled to cast
on any such matter, if all of the shares of such class or classes or one or more
series of a class or classes of stock were present and voted at a meeting of the
Corporation's stockholders for the purpose of stockholder action on such matter.
(b) In the absence of a quorum at any annual or special meeting of
stockholders, a majority in total voting power of the shares of stock entitled
to vote, or in the case of matters requiring a separate vote by any class or
classes or one or more series of a class or classes of stock, a majority in
total voting power of the shares of each such class or classes or one or more
series of a class or classes entitled to vote, present in person or represented
by proxy or, in the absence of all such stockholders, any person entitled to
preside at or act as secretary of such meeting, shall have the power to adjourn
the meeting from time to time, if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. At any such adjourned meeting
at which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally called. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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Section 2.6. Notice of Stockholder Business and Nominations.
----------------------------------------------
(a) Annual Meetings of Stockholders. (i) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-Law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 60th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or after such anniversary date, notice by the stockholder to be timely
must be so delivered not later than the close of business on the later of the
60th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (A) as to
each person whom the stockholder proposes to nominate for election or re-
election as a director all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors in an
election contest, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and Rule 14a-11 thereunder (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (B) as to any other business that the stockholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (C) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (x) the name and address of such stockholder,
as
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they appear on the Corporation's books, and of such beneficial owner and (y) the
class and number of shares of the Corporation which are owned beneficially and
of record by such stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this By-Law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-Law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-Law. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be),for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (a)(ii) of this By-Law shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected at such meeting. In
no event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
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(c) General. (i) Only such persons who are nominated in accordance
with the procedures set forth in this By-Law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this By-Law. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to declare that
such defective proposal or nomination shall be disregarded.
(ii) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Section 2.7. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board or in his absence, the Chief Executive Officer, or in his
absence, the President or any other officer designated by the Board, shall act
as chairman of and preside over the meeting, and the Secretary or an Assistant
Secretary of the Corporation, or any other person whom the chairman of such
meeting shall appoint, shall act as secretary of the meeting and keep the
minutes thereof.
Section 2.8. Voting.
------
(a) Except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws, at every meeting of the stockholders or in the
case of any written consent of stockholders, and for all other purposes, each
holder of record of shares of Common Stock on the relevant record date shall be
entitled to one (1) vote for each share of Common Stock standing in such
person's name on the stock transfer records of the
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Corporation. If no such record date shall have been fixed by the Board, then the
record date shall be as fixed by applicable law.
(b) Persons holding a share or shares of stock in a fiduciary capacity
shall be entitled to vote the share or shares so held and to consent in writing
with respect to such share or shares. If shares of stock stand of record in the
names of two or more persons, or if two or more persons have the same fiduciary
relationship respecting the same shares of stock, such persons may designate in
writing one or more of their number to represent such stock and vote the shares
so held, unless there is a provision to the contrary in the instrument or order,
if any, defining their powers and duties, appointing them, or creating their
relationship, and a copy of such instrument or order is furnished to the
Secretary of the Corporation along with written notice to the contrary.
(c) Persons whose stock is pledged shall be entitled to vote the
pledged shares, unless in the transfer by the pledgor on the books of the
Corporation the pledgor has expressly empowered the pledgee to vote thereon, in
which case only the pledgee, or his proxy, may represent such stock and vote
thereon.
(d) Any stockholder entitled to vote may do so in person or by his
proxy appointed by an instrument in writing subscribed by such stockholder or by
his attorney thereunto authorized, delivered to the secretary of the meeting;
provided, however, that no proxy shall be voted after three years from its date,
unless said proxy provides for a longer period. The provisions of this
subsection 2.8(d) are not intended to and do not limit the manner in which a
stockholder may authorize another person or persons to act for him as proxy.
(e) At all meetings of the stockholders at which a quorum is present,
except as otherwise provided by law or by the Certificate of Incorporation or
these By-Laws, all matters shall be decided by the affirmative vote of the
holders of a majority in voting power of the shares entitled to vote thereon and
present in person or represented by proxy at such meeting, voting as a single
class. Except as otherwise provided by the Certificate of Incorporation, where
a separate vote by class or classes or one or more series of a class or classes
of stock is required for any matter, such matters shall be decided by the
affirmative vote of the holders of a majority in voting power of the shares of
each such class or classes or one or more series of a class or classes entitled
to vote thereon and present in person or represented by proxy at such meeting, a
quorum being present. Except as otherwise provided by the Certificate of
Incorporation or these By-Laws, directors shall be elected by the affirmative
vote of a plurality in voting power of the shares present in person or
represented by proxy and entitled to vote for the election of directors at a
meeting at which a quorum is present.
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Section 2.9. No Stockholder Action by Written Consent. Subject to
----------------------------------------
the rights of the holders of any series of Preferred Stock with respect to such
series of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a meeting of stockholders of
the Corporation and may not be effected by any consent in writing by such
stockholder.
Section 2.10. Inspectors. The Corporation shall, in advance of any
----------
meeting of the stockholders, appoint one or more inspector to act at the meeting
of the stockholders and make a written report thereof. Such inspectors, among
other things, shall accept and count the votes for and against the matters
presented for a vote, make a written report of the results of such votes, and
subscribe and deliver to the secretary of the meeting a certificate stating the
number of shares of stock issued and outstanding and entitled to vote thereon
and the number of shares voted for and against the questions presented. If no
inspector or alternate is able to act at a meeting of stockholders, the chairman
of the meeting shall appoint one or more inspectors to act at the meeting. The
inspectors need not be stockholders of the Corporation, and any director or
officer of the Corporation may be an inspector on any matter subject to a vote
other than a vote for or against his election to any position or office on or
with the Board or the Corporation or on any other matter subject to a vote in
which he may be directly interested. Before entering upon the discharge of any
of his duties as such, each inspector shall subscribe an oath faithfully to
execute the duties of an inspector with strict impartiality and according to the
best of his ability.
Section 2.11. List of Stockholders.
--------------------
(a) It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make, or
cause to be prepared and made, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list
shall be open during ordinary business hours to the examination of any
stockholder for any purpose germane to the meeting for a period of at least ten
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting or,
if not so specified, at the place where the meeting is to be held.
(b) Such list shall be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present.
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(c) The stock ledger shall be the conclusive evidence as to who are
the stockholders entitled to examine the stock ledger, and the list of
stockholders required by this Section 2.11, or the books of the Corporation, or
to vote in person or by proxy at any meeting of stockholders.
ARTICLE 3.
BOARD OF DIRECTORS
------------------
Section 3.1. Number of Directors. The number of Directors which
-------------------
shall constitute the entire Board of Directors shall be eleven (11).
Section 3.2. General Powers.
--------------
(a) Except as otherwise provided in the Certificate of Incorporation,
the business, property, policies, and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(b) Compensation and Nominating, Audit, Finance and Other Committees.
The Board of Directors may, by resolution adopted by a majority of the Board (i)
designate a Compensation and Nominating Committee to exercise, subject to
applicable provisions of law, the functions regularly administered by committees
of such type including, without limitation, the power to review and recommend to
the Board the compensation and benefit arrangements for the officers of the
Corporation, the administering of the stock option plans and executive
compensation programs of the Corporation, including bonus and incentive plans
applicable to officers and key employees of the Corporation and to recommend to
the Board nominees for election as Directors, (ii) designate an Audit Committee
to exercise, subject to applicable provisions of laws, the functions regularly
administered by committees of such type including, without limitation, (A) to
review the professional services and independence of the Corporation's
independent auditors and the scope of the annual external audit as recommended
by the independent auditors, (B) to ensure that the scope of the annual external
audit by the independent auditors of the Corporation is sufficiently
comprehensive, (C) to review, in consultation with the independent auditors and
the internal auditors, the plan and results of the annual external audit, the
adequacy of the Corporation's internal control systems and the results of the
Corporation's internal audits, (D) to review with management and the independent
auditors, the Corporation's annual financial statements, financial reporting
practices and the results of each external audit, and (E) to consider the
qualification of the
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Corporation's independent auditors, to make recommendations to the Board as to
their selection and to review the relationship between such independent auditors
and management, (iii) designate a Finance Committee to exercise, subject to
applicable provisions of law, the functions regularly administered by committees
of such type including, without limitation, to make recommendations to the Board
with respect to the Corporation's credit arrangements, the issuance of equity
and long term debt instruments and other financial matters, and(iv) by
resolution similarly adopted, designate one or more other committees. The
Compensation and Nominating Committee, the Audit Committee, the Finance
Committee and each such other committee shall consist of five or more directors
of the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, other than the Compensation
and Nominating Committee, Audit Committee and Finance Committee (the powers of
which are expressly provided for herein), may to the extent permitted by law
exercise such powers and shall have such responsibilities as shall be specified
in the designating resolution. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member. Under no circumstances may the
committee members, in their capacities as such, appoint another director to act
in the place of such absent or disqualified member. In the event that, and for
so long as, there are no duly appointed members, no duly designated alternate
members, and no duly appointed replacement members of one (1) or more committees
of the Board, the powers and authority that otherwise would be delegated to and
exercised by such committee shall be reserved to and exercised by the Board.
A majority of any committee may determine its action and fix the time and
place of its meetings, unless the Board shall otherwise provide. Notice of such
meetings shall be given to each member of the committee in the manner provided
for in Section 3.10 of these By-Laws. The Board shall have power at any time to
fill vacancies in, to change the membership of, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the Board from appointing
one or more committees consisting in whole or in part of persons who are not
directors of the Corporation; provided, however, that no such committee shall
have or may exercise any authority of the Board.
Each committee of the Board shall keep regular minutes of its
proceedings and report the same to the Board when so requested by the Board.
Any such committee shall fix its own rules of procedure, subject to the approval
of the Board and the
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provisions of the Certificate of Incorporation and of these By Laws.
Section 3.3. Election of Directors. Except as otherwise provided in
---------------------
the Certificate of Incorporation, the directors shall be elected by the
stockholders at the annual meeting of stockholders.
Section 3.4. Tenure and Qualifications. A director need not be a
-------------------------
stockholder. Each director shall hold office until the annual meeting of the
Stockholders next following his election and until his successor shall have been
elected and qualified, or until his death, or until he shall resign, or until he
shall have been removed or disqualified.
Section 3.5. Quorum and Manner of Acting.
---------------------------
(a) Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, a majority of the whole Board shall be required
to constitute a quorum for the transaction of business at any meeting of the
Board, and the affirmative vote of a majority of the directors present at any
meeting of the Board at which a quorum is present shall be required for the
taking of any action by the Board. Except as otherwise provided by law, the
Certificate of Incorporation, or By-Laws, a majority of the total number of
members of any committee of the Board shall be required to constitute a quorum
for the transaction of business at any meeting of such committee, and the
affirmative vote of a majority of the members of any committee of the Board
present at any meeting of such committee at which a quorum is present shall be
required for the taking of any action by such committee.
(b) In the absence of a quorum at any meeting of the Board of
Directors or of any committee of the Board, such meeting need not be held; or a
majority of the directors or committee members, as the case may be, present
thereat or, if no director or committee member be present, the Secretary, may
adjourn such meeting from time to time until a quorum shall be present. Notice
of any adjourned meeting need not be given except by announcement at the meeting
at which the adjournment is taken.
Section 3.6. Action by Communications Equipment. The directors may
----------------------------------
participate in a meeting of the Board or any committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.
Section 3.7. Offices, Place of Meeting and Records. The Board and
-------------------------------------
any committee of the Board may hold meetings and
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have an office or offices at such place or places within or without the State of
Delaware as the Board or such committee, as the case may be, may from time to
time determine. The place of meeting shall be as from time to time designated by
the Board or such committee, as the case may be, or as specified or fixed in the
respective notices or waivers of notice thereof, except where no notice of such
meeting is required, and except as otherwise provided by law, by the Certificate
of Incorporation or these By-Laws.
Section 3.8. Annual Meeting. The Board shall meet for the purpose
--------------
of organization, the election of principal officers and the transaction of other
business, if a quorum be present, immediately following each annual election of
directors by the stockholders; or the time and place of such meeting may be
fixed by a majority of the total number of directors in office.
Section 3.9. Regular Meetings. Regular meetings of the Board and
----------------
committees of the Board shall be held at such places and at such times as the
Board or such committee, as the case may be, shall from time to time determine.
Notice of regular meetings need not be given.
Section 3.10. Special Meetings; Notice. Special meetings of the
------------------------
Board of Directors shall be held whenever called by the Chief Executive Officer
or Chairman of the Board or by a majority of the total number of directors in
office. Special meetings of committees of the Board shall be held whenever
called by the Chief Executive Officer or Chairman of the Board, a majority of
the total number of directors in office or a majority of the members of such
committee. Notice of each such meeting shall be mailed to each director or
committee member, as the case may be, addressed to him at his usual place of
business at least ten days before the day on which the meeting is to be held, or
shall be sent to him at such place of business by facsimile transmission or
other available means, or delivered personally or by telephone not later than 24
hours before the day on which the meeting is to be held. Each such notice shall
state the time and place of the meeting and the purpose thereof. Notice of any
such meeting need not be given to any director or committee member, as the case
may be, however, if waived by him in writing, whether before or after such
meeting shall be held, or if he shall be present at such meeting other than for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 3.11. Organization. At each meeting of the Board of
------------
Directors, the Chairman of the Board or, in his absence, a director chosen by a
majority of the directors present shall act as chairman of and preside over the
meeting. At each meeting of any committee of the Board, the Chairman of the
Board, if he
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be a member of such committee, or in his absence, the member of such committee
designated as chairman of such committee by the Board, or in the absence of such
designation or such designated chairman, a member of such committee chosen by a
majority of the members of such committee present, shall act as chairman of and
preside over the meeting. The Secretary or, in his absence an Assistant
Secretary or, in the absence of the Secretary and all Assistant Secretaries, a
person whom the chairman of such meeting shall appoint, shall act as secretary
of such meeting and keep the minutes thereof.
Section 3.12. Order of Business. At all meetings of the Board of
-----------------
Directors and committees of the Board, business shall be transacted in the order
determined by the chairman of such meeting.
Section 3.13. Removal of Directors. Except as otherwise provided by
--------------------
law, the Certificate of Incorporation or these By-Laws, any director or the
entire Board may be removed, either with or without cause, at any time and from
time to time, by the affirmative vote or written consent of a majority in voting
power of the shares of the capital stock of the Corporation then entitled to
vote for the election of directors of the Corporation.
Section 3.14. Resignation. Any director of the Corporation may
-----------
resign at any time by giving written notice of his resignation to the Board, the
Chief Executive Officer, President or Chairman of the Board, or the Secretary of
the Corporation. Such resignation shall take effect at the date of receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 3.15. Vacancies. Except as otherwise provided in the
---------
Certificate of Incorporation, vacancies on the Board, caused by death,
resignation, removal, disqualification, or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled by a majority action of the remaining directors then in office,
though less than a quorum, or by election upon the vote of the stockholders of
the Corporation at the next annual meeting or any special meeting called for
such purpose or upon action of the stockholders of the Corporation taken by
written consent, and each director so elected to fill any such vacancy or newly
created directorship shall hold office until the next annual election of
directors and until his successor shall be duly elected and qualified or until
his death or until he shall resign or until he shall have been removed or
disqualified.
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Section 3.16. Compensation. Each director, in consideration of his
------------
serving as such, shall be entitled to receive from the Corporation such amount
per annum or such fees for attendance at directors' meetings, or both, as the
Board shall from time to time determine, together with reimbursement for the
reasonable expenses incurred by him in connection with the performance of his
duties; provided that nothing herein contained shall be construed to preclude
any director from serving the Corporation or its subsidiaries in any other
capacity and receiving proper compensation therefor.
Section 3.17. Interested Directors. No contract or transaction
--------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, that is otherwise duly authorized in
accordance with the provisions of the Certificate of Incorporation, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested directors, even though the dis interested
directors be less than a quorum; or (ii) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board or of a committee
which authorizes the contract or transaction.
ARTICLE 4.
ACTION BY CONSENT
-----------------
Section 4.1. Consent by Directors. Unless otherwise provided in the
--------------------
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, without prior notice and without a vote if a written consent
thereto is signed by all members of the Board or of such committee, as the case
may be, and such written consent or
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consents is filed with the minutes of the proceedings of the Board or such
committee.
Section 4.2. Consent by Stockholders. Any action required or
-----------------------
permitted to be taken at any meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote upon the delivery to the
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware, as the same now exists or may hereafter be amended, or the
provisions of a successor statute ("Section 228"), of a written consent or
written consents of the holders of outstanding shares of stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of any corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing, and any certificate required to
be filed with the office of the Secretary of State of the State of Delaware with
respect to such matter shall state that written consent has been given in
accordance with Section 228 and that such written notice has been given.
ARTICLE 5.
OFFICERS
--------
Section 5.1. Number. The principal officers of the Corporation
------
shall be a Chairman of the Board, Chief Executive officer, a President, a Chief
Financial Officer, a Treasurer and a Secretary. In addition, there may be such
other or subordinate officers, agents and employees as may be appointed in
accordance with the provisions of Section 5.12. Any two or more offices may be
held by the same person, except that the office of Secretary shall be held by a
person other than the person holding the office of President.
Section 5.2. Election, Qualifications and Term of Office. Each
-------------------------------------------
officer of the Corporation, except such officers as may be appointed in
accordance with the provisions of Section 5.12, shall be elected annually by the
Board of Directors and shall hold office until his successor shall have been
duly elected and qualified, or until his death, or until he shall have resigned
or shall have been removed.
Section 5.3. Removal. Any officer may be removed, either with or
-------
without cause, by the action of the Board of Directors.
Section 5.4. Resignation. Any officer may resign at any time by
-----------
giving written notice to the Board of Directors, or
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the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary of the Corporation. Any such resignation shall take effect at the date
of receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5.5. Vacancies. A vacancy in any office under this Article
---------
Five because of death, resignation, removal, disqualification or any other cause
shall be filled for the unexpired portion of the term in the manner prescribed
in this Article Five for regular election or appointment to such office.
Section 5.6. Chairman of the Board. The directors may elect one of
---------------------
their members to be Chairman of the Board. The Chairman of the Board, as such,
shall be subject to the control of and may be removed by the Board. The
Chairman of the Board shall be a director and shall preside at all meetings of
the Board and stockholders. The Chairman of the Board shall have general
executive powers and such specific powers and duties as from time to time may be
conferred or assigned by the Board.
Section 5.7. Chief Executive Officer. Subject to the direction of
-----------------------
the Board or the Chairman of the Board, the Chief Executive Officer shall be the
chief executive officer of the Corporation, shall have general charge and
supervision of the business of the Corporation and shall exercise chief
executive powers and such specific powers and shall perform such duties as from
time to time may be conferred upon or assigned to him by the Board, the Chairman
of the Board or any committee thereof designated by it to so act. In the
absence of the Chairman of the Board, the Chief Executive Officer shall preside
at all meetings of the Board and the stockholders.
Section 5.8. President. The President shall have general executive
---------
powers and such specific powers and shall perform such duties as from time to
time may be conferred upon or assigned to him by the Board, the Chairman of the
Board, the Chief Executive Officer, or any committee of the Board designated by
it to so act.
Section 5.9. Chief Financial Officer. The Chief Financial Officer
-----------------------
shall maintain or cause to be maintained adequate records of all assets,
liabilities, and transactions of the Corporation and adequate internal
accounting controls; shall prepare or cause to be prepared such financial
statements or reports on the Corporation's results of operations or financial
condition as required by law or directed by the Board; shall insure that
adequate audits thereof are currently and regularly made; and shall, in
consultation with the Chief Executive Officer or the Chairman of the Board,
undertake measures and implement procedures designed to facilitate or further
the foregoing. His
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<PAGE>
duties and powers shall, so far as the Chief Executive Officer or the Chairman
of the Board may deem practicable, extend to all subsidiary corporations.
Section 5.10. Treasurer. The Treasurer shall have charge and custody
---------
of, and be responsible for, all funds and securities of the Corporation, and
shall deposit all such funds to the credit of the Corporation in such banks,
trust companies or other depositories as shall be selected in accordance with
the provisions of these By-Laws. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board, making proper vouchers for such
disbursements, and shall render to the Board or the committee of the Board to
which he reports or the stockholders, whenever the Board may require him so to
do, a statement of all his transactions as Treasurer and of the financial
condition of the Corporation; and, in general, he shall perform all the duties
as from time to time may be assigned to him by the Board, or by the Chief
Executive Officer or Chairman of the Board. When required by the Board, the
Treasurer shall give bonds for the faithful discharge of his duties in such sums
and with such sureties as the Board shall approve.
Section 5.11. Secretary. The Secretary shall record or cause to be
---------
recorded in books provided for the purpose the minutes of the meetings of the
stockholders, the Board, and all committees of which a secretary shall not have
been appointed; shall see that all notices are duly given in accordance with the
provisions of the Certificate of Incorporation and these By-Laws and as required
by law; shall be custodian of all corporate records (other than financial
records) and of the seal of the Corporation and see that the seal is affixed to
all documents the execution of which on behalf of the Corporation under its seal
is duly authorized, in accordance with, and required by, the provisions of these
By-Laws; shall keep, or cause to be kept, the list of stockholders as required
by Section 2.11 of Article Two of these By-Laws, which shall include the post-
office addresses of the stockholders and the number of shares held by them,
respectively, and shall make or cause to be made, all proper changes therein;
shall see that the books, reports, statements, certificates and all other
documents and records required by law are properly kept and filed; and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may from time to time be assigned to him by the Board, by any
committee of the Board designated by it to so act, or by the Chief Executive
Officer or Chairman of the Board. The Secretary shall be appointed by the Chief
Executive Officer or by the Board of Directors.
Section 5.12. Other Officers. The Corporation may have such other
--------------
officers, agents, and employees as the Board may designate, including without
limitation, one or more Senior or Executive Vice Presidents, one or more Vice
Presidents, a Chief
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<PAGE>
Operating Officer, a Senior Legal Officer, a Controller, one or more Assistant
Controllers, one or more Assistant Treasurers, and one or more Assistant
Secretaries, each of whom shall hold such office, for such period, have such
authority, and perform such duties as the Board, any committee of the Board
designated by it to so act, or the Chief Executive Officer or Chairman of the
Board may from time to time determine. The Board may delegate to any principal
officer the power to appoint or remove any such subordinate officers, agents or
employees.
Section 5.13. Salaries. The salaries of the principal officers of
--------
the Corporation shall be fixed from time to time by the Board or a duly
designated and constituted committee thereof duly empowered and authorized so to
act, and none of such officers shall be prevented from receiving a salary by
reason of the fact that he is a director of the Corporation.
ARTICLE 6.
INDEMNIFICATION, ETC.
--------------------
Section 6.1. Indemnification and Advances of Expenses. To the
------------------------------- --------
fullest extent permitted by the General Corporation Law of the State of Delaware
("GCL"), as the same now exists or may hereafter be amended, and, to the extent
required by the GCL, only as authorized in the specific case upon the making of
a determination that indemnification of the person is proper in the
circumstances because he has met the applicable standard of conduct prescribed
in Sections 145(a) and (b) of the GCL, the Corporation shall indemnify and hold
harmless any person who was or is a director, officer or incorporator of the
Corporation from and against any and all expenses (including counsel fees and
disbursements), judgments, fines (including excise taxes assessed on a person
with respect to an employee benefit plan), and amounts paid in settlement that
may be imposed upon or incurred by him in connection with, or as a result of,
any threatened, pending, or completed proceeding, whether civil, criminal,
administrative or investigative (whether or not by or in the right of the
Corporation), in which he is or may become involved, as a party or otherwise, by
reason of the fact that he is or was such a director, officer or incorporator of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, incorporator, employee, partner, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including an
employee benefit plan), whether or not he continues to be such at the time such
expenses and judgments, fines and amounts paid in settlement shall have been
imposed or incurred. The Corporation shall be required to indemnify such a
person who is or was a director, officer, or incorporator in connection with a
proceeding (or part thereof) initiated by such person, however, only if the
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<PAGE>
initiation of such proceeding (or part thereof) by such person was authorized by
the Board. Such right of indemnification shall inure whether or not such
expenses and judgments, fines and amounts paid in settlement are imposed or
incurred based on matters which antedate the adoption of this Article Six. Such
right of indemnification shall continue as to a person who has ceased to be a
director, officer or incorporator of the Corporation, and shall inure to the
benefit of the heirs and personal representatives of such a person.
Expenses incurred by a person who is or was a director, officer, or
incorporator of the Corporation in defending or investigating a threatened or
pending action, suit or proceeding in which such person is or may become
involved, as a party or otherwise, by reason of the fact that he is or was a
director, officer, or incorporator of the Corporation or is or was serving at
the request of the Corporation as a director, officer, incorporator, employee,
partner, trustee, or agent of another corporation, partnership, joint venture,
trust or other enterprise (including an employee benefit plan), shall be paid by
the Corporation in advance of final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation under this Article Six or otherwise.
The rights to indemnification and advancement of expenses provided by
this Article Six shall not be deemed exclusive of any other rights which are or
may be provided now or in the future under any provision currently in effect or
hereafter adopted of these By-Laws, by any agreement, by vote of stockholders,
by resolution of directors, by provision of law or otherwise.
Section 6.2. Employees and Agents. The Corporation may, to the
--------------------
extent authorized from time to time by the Board of Directors, provide to
employees and agents of the Corporation who are not directors, officers or
incorporators rights to indemnification and advancement of expenses similar to
those conferred in this Article Six on directors, officers and incorporators of
the Corporation.
Section 6.3. Repeal or Modification. Any repeal or modification of
----------------------
this Article Six shall not adversely affect any rights to indemnification and
advancement of expenses of a director, officer or incorporator of the
Corporation existing pursuant to this Article Six with respect to any acts or
omissions occurring prior to such repeal or modification.
Section 6.4. Other Indemnification. The Corporation's obligation,
---------------------
if any, to indemnify any person who is or was serving at its request as a
director, officer,
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<PAGE>
incorporator, employee, partner, trustee, or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan), shall be reduced by any amount such person actually receives as
indemnification from such other corporation, partnership, joint venture, trust
or other enterprise.
ARTICLE 7.
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
---------------------------------------------
Section 7.1. Execution of Contracts. Unless the Board shall
----------------------
otherwise determine, the Chief Executive Officer, President or Chairman of the
Board, any Vice President, the Treasurer or the Secretary may enter into any
contract or execute any contract or other instrument, the execution of which is
not otherwise specifically provided for, in the name and on behalf of the
Corporation. The Board, or any committee designated by it to so act, except as
otherwise provided in these By-Laws, may authorize any other or additional
officer or officers or agent or agents of the Corporation to so act, and such
authority may be general or confined to specific instances. Unless duly
authorized so to do by the Certificate of Incorporation or by these By-Laws or
by the Board or by any such committee, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable pecuniarily for any purpose or to
any amount.
Section 7.2. Loans. No loan shall be contracted on behalf of the
-----
Corporation, and no evidence of indebtedness shall be issued, endorsed or
accepted in its name, unless duly authorized by the Board or any committee
designated by it to so act. Such authority may be general or confined to
specific instances. When so authorized, the officer or officers thereunto
authorized may effect loans and advances at any time for the Corporation from
any bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances may make, execute and deliver
promissory notes or other evidences of indebtedness of the Corporation, and,
when authorized as aforesaid, as security for the payment of any and all loans,
advances, indebtedness and liabilities of the Corporation, may mortgage, pledge,
hypothecate or transfer any real or personal property at any time owned or held
by the Corporation, and to that end execute instruments of mortgage or pledge or
otherwise transfer such property.
Section 7.3. Checks, Drafts, etc. All checks, drafts, bills of
--------------------
exchange or other orders for the payment of money, obligations, notes, or other
evidence of indebtedness, bills of lading, warehouse receipts and insurance
certificates of
-20-
<PAGE>
the Corporation, shall be signed or endorsed by such officer or officers, agent
or agents, attorney or attorneys, employee or employees, of the Corporation as
shall from time to time be determined by resolution of the Board or any
committee designated by it to so act.
Section 7.4. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board or any
committee designated by it to so act may from time to time designate, or as may
be designated by any officer or officers or agent or agents of the Corporation
to whom such power may be delegated by the Board or any committee designated by
it to so act and, for the purpose of such deposit and for the purposes of
collection for the account of the Corporation may be endorsed, assigned and
delivered by any officer, agent or employee of the Corporation or in such other
manner as may from time to time be designated or determined by resolution of the
Board or any committee designated to so act.
Section 7.5. Proxies in Respect of Securities of Other Corporations.
------------------------------------------------------
Unless otherwise provided by resolution adopted by the Board or any committee
designated by it to so act, the Chairman of the Board, Chief Executive Officer
or President or any Vice President may from time to time appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the votes which the Corporation may be entitled to cast
as the holder of stock or other securities in any other corporation, association
or trust, any of whose stock or other securities may be held by the Corporation,
at meetings of the holders of the stock or other securities of such other
corporation, association or trust, or to consent in writing, in the name of the
Corporation as such holder, to any action by or respecting such other
corporation, association or trust, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed in the name and on behalf of the Corporation and
under its corporate seal, or otherwise, all such written proxies or other
instruments as he may deem necessary or proper in the premises.
ARTICLE 8.
BOOKS AND RECORDS
-----------------
Section 8.1. Place. The books and records of the Corporation may be
-----
kept at such places within or without the state of Delaware as the Board may
from time to time determine.
Section 8.2. Addresses of Stockholders. Each stockholder shall
-------------------------
furnish to the Secretary of the Corporation or
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<PAGE>
to a transfer agent of the Corporation an address at which notices of meetings
and all other corporate notices and communications may be served upon or mailed
to him, and if any stockholder shall fail to designate such address, corporate
notices and communications may be served upon him by mail, postage prepaid, to
him at his post office address last known to the Secretary or to a transfer
agent of the Corporation or by transmitting a notice thereof to him at such
address by facsimile transmission or other available method.
Section 8.3. Record Dates. Except as otherwise provided by law or
------------
these By-Laws, in order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix, in advance, a record date, which
shall not be more than sixty days nor less than ten days before the date of such
meeting, or more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
Section 8.4. Audit of Books and Accounts. The books and accounts of
---------------------------
the Corporation shall be audited at least once in each fiscal year by certified
public accountants of good standing selected by the Board.
ARTICLE 9.
SHARES AND THEIR TRANSFER
-------------------------
Section 9.1. Certificates of Stock. Every holder of record of
---------------------
shares of stock of the Corporation shall be entitled to have a certificate
certifying the number of shares owned by him and designating the class of stock
to which such shares belong, which shall otherwise be in such form as the Board
may prescribe. Every such certificate shall be signed by the Chairman of the
Board, President or a Vice President, and the Treasurer or any Assistant
Treasurer or the Secretary or any Assistant Secretary of the Corporation; any
and all signatures may be in facsimile form. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or
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<PAGE>
certificates may nevertheless be issued and delivered by the Corporation as
though the person or persons who signed such certificate or whose facsimile
signature or signatures shall have been used had not ceased to be such officer
or officers of the Corporation.
Section 9.2. Record. A record shall be kept of the name of the
------
person, firm or corporation owning the shares of stock represented by each
certificate for shares of stock of the Corporation issued, the number of shares
represented by each such certificate, and the date thereof, and, in case of
cancellation, the date of cancellation. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the Certificate of Incorporation or law. The stock record books and the blank
stock certificate books shall be kept by the Secretary or by any other officer
or agent designated by the Board.
Section 9.3. Transfer of Stock. Except as otherwise provided by law
-----------------
or the Certificate of Incorporation, transfers of shares of the stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized, and on the surrender of
the certificate or certificates for such shares properly endorsed or accompanied
by proper instruments of transfer; provided, however, that such transfer is
-------- -------
subject to the transfer restrictions contained in the Certificate of
Incorporation.
Section 9.4. Transfer Agent and Registrar; Regulations. The
-----------------------------------------
Corporation shall, if and whenever the Board shall so determine, maintain one or
more transfer offices or agencies, each in charge of a transfer agent designated
by the Board, where the shares of the capital stock of the Corporation shall be
directly transferable, and also if and whenever the Board shall so determine,
maintain one or more registry offices, each in charge of a registrar designated
by the Board, where such shares of stock shall be registered. The Board may
make such rules and regulations as it may deem expedient, not inconsistent with
the Certificate of Incorporation or these By-Laws, concerning the issue,
transfer and registration of certificates for shares of the capital stock of the
Corporation.
Section 9.5. Lost, Destroyed or Mutilated Certificates. The Board
---------------------------- ------------
may direct a new certificate representing shares of stock to be issued in place
of any certificate theretofore issued by the Corporation alleged to have
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<PAGE>
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate, the Board may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or give the Corporation a bond in such sum as the Board may
direct to indemnify the Corporation against any claim that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed.
ARTICLE 10.
SEAL
----
The Board shall adopt and approve a corporate seal, which shall be in
the form of a circle and shall bear the full name of the Corporation, the year
of its incorporation and the words and figures "Corporate Seal, Delaware." The
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
ARTICLE 11.
FISCAL YEAR
-----------
The fiscal year of the Corporation shall commence on the first day of
January, except as otherwise provided from time to time by resolution of the
Board of Directors.
ARTICLE 12.
NOTICE
------
Section 12.1. Delivery of Notices. Except as otherwise provided in
-------------------
these By-Laws, whenever written notice is required by law, the Certificate of
Incorporation or these By Laws, to be given to any director, member of a
committee of the Board or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given
personally or by facsimile transmission, telegram, telex or cable or other
permissible means.
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<PAGE>
Section 12.2. Waivers of Notice. Whenever any notice is required by
-----------------
law, the Certificate of Incorporation or these By Laws, to be given to any
director, member of a committee of the Board or stockholder, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE 13.
AMENDMENTS
----------
Section 13.1. By-Laws. The Board may adopt, amend or repeal the By-
-------
Laws by the affirmative vote of a majority of the Board provided, however, that
Section 2.3 may not be amended or repealed without the affirmative vote of 85%
of the outstanding shares entitled to vote for the election of directors. No
such amendment may be made unless the By-Laws, as amended, are consistent with
the provisions of the General Corporation Law of the State of Delaware and of
the Certificate of Incorporation.
ARTICLE 14.
DIVIDENDS
---------
Dividends upon shares of the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board, only in accordance with these By-Laws and the Certificate of
Incorporation, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board from
time to time, in its absolute discretion, deems proper as a reserve or reserves
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board may modify or abolish any such reserve.
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<PAGE>
EXHIBIT 4.3
EXECUTION
COPY
================================================================================
MARVEL ENTERPRISES, INC.,
Issuer
MEI HOLDING COMPANY F CORP.,
MEI HOLDING COMPANY S CORP.,
MEI HOLDING COMPANY FHF CORP.,
MRV, INC.,
MALIBU COMICS ENTERTAINMENT, INC.,
MARVEL CHARACTERS, INC.,
MARVEL ENTERTAINMENT GROUP, INC.,
and
MARVEL RESTAURANT VENTURE CORP.,
Guarantors
and
IBJ WHITEHALL BANK & TRUST COMPANY,
Trustee
_________________________
Indenture
Dated as of February 25, 1999
_________________________
12% Senior Notes due 2009
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
<TABLE>
<CAPTION>
TIA Sections Indenture Sections
- - ------------ ------------------
<S> <C>
(S) 310(a)(1)........................................... 7.10
(a)(2)........................................... 7.10
(b).............................................. 7.03; 7.08
(S) 311(a).............................................. 7.03
(b).............................................. 7.03
(S) 312(a).............................................. 2.04
(b).............................................. 11.02
(c).............................................. 11.02
(S) 313(a).............................................. 7.06
(b)(2)........................................... 7.07
(c).............................................. 7.05; 7.06; 11.02
(d).............................................. 7.06
(S) 314(a).............................................. 7.05; 11.02
(a)(4)........................................... 4.17; 11.02
(c)(1)........................................... 11.03
(c)(2)........................................... 11.03
(e).............................................. 4.17; 11.04
(S) 315(a).............................................. 7.02
(b).............................................. 7.05; 11.02
(c).............................................. 7.02
(d).............................................. 7.02
(e).............................................. 6.11
(S) 316(a)(1)(A)........................................ 6.05
(a)(1)(B)........................................ 6.04
(b).............................................. 6.07
(c).............................................. 9.03
(S) 317(a)(1)........................................... 6.08
(a)(2)........................................... 6.09
(b).............................................. 2.05
(S) 318(a).............................................. 11.01
(c).............................................. 11.01
</TABLE>
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions....................................................................... 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act................................. 25
SECTION 1.03. Rules of Construction............................................................. 25
ARTICLE TWO THE NOTES
SECTION 2.01. Form and Dating................................................................... 26
SECTION 2.02. Restrictive Legends............................................................... 27
SECTION 2.03. Execution, Authentication and Denominations....................................... 29
SECTION 2.04. Registrar and Paying Agent........................................................ 30
SECTION 2.05. Paying Agent to Hold Money in Trust............................................... 31
SECTION 2.06. Transfer and Exchange............................................................. 31
SECTION 2.07. Book-Entry Provisions for Global Notes............................................ 32
SECTION 2.08. Special Transfer Provisions....................................................... 34
SECTION 2.09. Replacement Notes................................................................. 37
SECTION 2.10. Outstanding Notes................................................................. 37
SECTION 2.11. Temporary Notes................................................................... 38
SECTION 2.12. Cancellation...................................................................... 38
SECTION 2.13. CUSIP Numbers..................................................................... 38
SECTION 2.14. Defaulted Interest................................................................ 38
SECTION 2.15. Issuance of Additional Notes...................................................... 39
ARTICLE THREE REDEMPTION
SECTION 3.01. Right of Redemption............................................................... 39
SECTION 3.02. Notices to Trustee................................................................ 40
SECTION 3.03. Selection of Notes to Be Redeemed................................................. 40
SECTION 3.04. Notice of Redemption.............................................................. 40
SECTION 3.05. Effect of Notice of Redemption.................................................... 41
SECTION 3.06. Deposit of Redemption Price....................................................... 41
SECTION 3.07. Payment of Notes Called for Redemption............................................ 42
SECTION 3.08. Notes Redeemed in Part............................................................ 42
ARTICLE FOUR COVENANTS
SECTION 4.01. Payment of Notes.................................................................. 42
SECTION 4.02. Maintenance of Office or Agency................................................... 42
SECTION 4.03. Limitation on Indebtedness........................................................ 43
SECTION 4.04. Limitation on Restricted Payments................................................. 46
</TABLE>
____________________
Note: The Table of Contents shall not for any purposes be deemed to be a part
of this Indenture.
<PAGE>
ii
<TABLE>
<S> <C>
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries........................................................... 50
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries...................................................................... 51
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries.................. 52
SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates....................... 52
SECTION 4.09. Limitation on Liens............................................................... 54
SECTION 4.10. Limitation on Sale-Leaseback Transactions......................................... 55
SECTION 4.11. Limitation on Asset Sales......................................................... 55
SECTION 4.12. Repurchase of Notes upon a Change of Control...................................... 57
SECTION 4.13. Existence......................................................................... 57
SECTION 4.14. Payment of Taxes and Other Claims................................................. 57
SECTION 4.15. Maintenance of Properties and Insurance........................................... 57
SECTION 4.16. Notice of Defaults................................................................ 58
SECTION 4.17. Compliance Certificates........................................................... 58
SECTION 4.18. Commission Reports and Reports to Holders......................................... 59
SECTION 4.19. Waiver of Stay, Extension or Usury Laws........................................... 59
SECTION 4.20. Issuance of Subsidiary Guarantees by Restricted Subsidiaries ..................... 59
ARTICLE FIVE SUCCESSOR CORPORATION
SECTION 5.01. When Company or Guarantors May Merge, Etc......................................... 60
SECTION 5.02. Successor Substituted............................................................. 61
ARTICLE SIX DEFAULT AND REMEDIES
SECTION 6.01. Events of Default................................................................. 61
SECTION 6.02. Acceleration...................................................................... 63
SECTION 6.03. Other Remedies.................................................................... 64
SECTION 6.04. Waiver of Past Defaults........................................................... 64
SECTION 6.05. Control by Majority............................................................... 64
SECTION 6.06. Limitation on Suits............................................................... 64
SECTION 6.07. Rights of Holders to Receive Payment.............................................. 65
SECTION 6.08. Collection Suit by Trustee........................................................ 65
SECTION 6.09. Trustee May File Proofs of Claim.................................................. 66
SECTION 6.10. Priorities........................................................................ 66
SECTION 6.11. Undertaking for Costs............................................................. 66
SECTION 6.12. Restoration of Rights and Remedies................................................ 67
SECTION 6.13. Rights and Remedies Cumulative.................................................... 67
SECTION 6.14. Delay or Omission Not Waiver...................................................... 67
ARTICLE SEVEN TRUSTEE
SECTION 7.01. General........................................................................... 67
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C>
SECTION 7.02. Certain Rights of Trustee......................................................... 68
SECTION 7.03. Individual Rights of Trustee...................................................... 69
SECTION 7.04. Trustee's Disclaimer.............................................................. 69
SECTION 7.05. Notice of Default................................................................. 69
SECTION 7.06. Reports by Trustee to Holders..................................................... 69
SECTION 7.07. Compensation and Indemnity........................................................ 69
SECTION 7.08. Replacement of Trustee............................................................ 70
SECTION 7.09. Successor Trustee by Merger, Etc.................................................. 71
SECTION 7.10. Eligibility....................................................................... 72
SECTION 7.11. Money Held in Trust............................................................... 72
ARTICLE EIGHT DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations.............................................. 72
SECTION 8.02. Defeasance and Discharge of Indenture............................................. 73
SECTION 8.03. Defeasance of Certain Obligations................................................. 75
SECTION 8.04. Application of Trust Money........................................................ 77
SECTION 8.05. Repayment to Company.............................................................. 77
SECTION 8.06. Reinstatement..................................................................... 78
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders........................................................ 78
SECTION 9.02. With Consent of Holders........................................................... 79
SECTION 9.03. Revocation and Effect of Consent.................................................. 80
SECTION 9.04. Notation on or Exchange of Notes.................................................. 80
SECTION 9.05. Trustee to Sign Amendments, Etc................................................... 81
SECTION 9.06. Conformity with Trust Indenture Act............................................... 81
ARTICLE TEN GUARANTEE OF NOTES
SECTION 10.01 Note Guarantee.................................................................... 81
SECTION 10.02 Obligations Unconditional......................................................... 83
SECTION 10.03 Release of Note Guarantees........................................................ 84
SECTION 10.04 Notice to Trustee................................................................. 84
SECTION 10.05 This Article Not to Prevent Events of Default..................................... 84
ARTICLE ELEVEN MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939...................................................... 84
SECTION 11.02. Notices.......................................................................... 84
SECTION 11.03. Certificate and Opinion as to Conditions Precedent............................... 86
SECTION 11.04. Statements Required in Certificate or Opinion.................................... 86
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar...................................... 87
SECTION 11.06. Payment Date Other Than a Business Day........................................... 87
SECTION 11.07. Governing Law.................................................................... 87
</TABLE>
<PAGE>
iv
<TABLE>
<S> <C>
SECTION 11.08. No Adverse Interpretation of Other Agreements.................................... 87
SECTION 11.09. No Recourse Against Others....................................................... 87
SECTION 11.10. Successors....................................................................... 87
SECTION 11.11. Duplicate Originals.............................................................. 88
SECTION 11.12. Separability..................................................................... 88
SECTION 11.13. Table of Contents, Headings, Etc................................................. 88
EXHIBIT A Form of Note.......................................................................... A-1
EXHIBIT B Form of Certificate................................................................... B-1
EXHIBIT C Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Non-QIB Accredited Investors................................ C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S................................................ D-1
</TABLE>
<PAGE>
INDENTURE, dated as of February 25, 1999, between MARVEL ENTERPRISES, INC.,
a Delaware corporation (the "Company"), 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"), as guarantors, and IBJ WHITEHALL BANK & TRUST
----------
COMPANY, a New York banking corporation, trustee (the "Trustee").
-------
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $250,000,000 aggregate
principal amount of the Company's 12% Senior Notes due 2009 (the "Notes")
-----
issuable as provided in this Indenture. All things necessary to make this
Indenture a valid agreement of the Company and each Guarantor, in accordance
with its terms, have been done, and the Company and each Guarantor have done all
things necessary to make the Notes, when executed by the Company and each
Guarantor and authenticated and delivered by the Trustee hereunder and duly
issued by the Company, valid obligations of the Company and each Guarantor as
hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions of
the Trust Indenture Act of 1939, as amended, that are required to be a part of
and to govern indentures qualified under the Trust Indenture Act of 1939, as
amended.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"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.
<PAGE>
"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
Section 4.04, 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,
<PAGE>
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.
"Agent" means any Registrar, Co-Registrar, Paying Agent or authenticating
-----
agent.
"Agent Members" has the meaning provided in Section 2.07(a).
-------------
"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 this 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 Section 4.04, (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 Section 4.11, (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
<PAGE>
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).
"Board of Directors" means the Board of Directors of the Company or any
------------------
committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution certified by the Secretary
----------------
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
------------
which commercial banks in The City of New York are authorized by law to close.
"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.
<PAGE>
"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 this Indenture.
"Commission" means the Securities and Exchange Commission, as from time to
----------
time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.
"Common Stock" means, with respect to any Person, any and all shares,
------------
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's equity, other than Preferred Stock of
such Person, whether outstanding on the Closing Date or issued thereafter,
including, without limitation, all series and classes of such common stock.
"Company" means the party named as such in the first paragraph of this
-------
Indenture until a successor replaces it pursuant to Article Five of this
Indenture and thereafter means the successor.
<PAGE>
"Company Order" means a written request or order signed in the name of the
-------------
Company (i) by its Chairman, a Vice Chairman, its President or a Vice President
and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant
Secretary and delivered to the Trustee; provided, however, that such written
request or order may be signed by any two of the officers or directors listed in
clause (i) above in lieu of being signed by one of such officers or directors
listed in such clause (i) and one of the officers listed in clause (ii) above.
"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
<PAGE>
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).
"Corporate Trust Office" means the office of the Trustee at which the
----------------------
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at One State Street, New York, New York 10004; Attention: Corporate
Administration and, in the event the Notes are listed on the Luxembourg Stock
Exchange, at Greffier et Chef du Tribunal d'Arrondissement de et a Luxembourg,
Chief Registrar of the District Court in Luxembourg.
"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.
"Depositary" means The Depository Trust Company, its nominees, and their
----------
respective successors.
"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 Section 4.11 and Section 4.12 and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such
<PAGE>
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to Section 4.11 and Section 4.12. For
the avoidance of doubt, the Company's outstanding 8% Preferred Stock would not
constitute Disqualified Stock under this Indenture.
"Event of Default" has the meaning provided in Section 6.01.
----------------
"Excess Administration Expense Claims Note" means a promissory note to be
-----------------------------------------
issued under the Plan by the Company to Zib Inc., a Delaware corporation, 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.
"Excess Proceeds" has the meaning provided in Section 4.11.
---------------
"Exchange Act" means the Securities Exchange Act of 1934.
------------
"Exchange Notes" means any securities of the Company containing terms
--------------
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that are issued and exchanged for the Notes pursuant
to the Registration Rights Agreement and this Indenture.
"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.
"Existing 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.
<PAGE>
"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 597 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
this 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 this 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.
"Global Notes" has the meaning provided in Section 2.01.
------------
"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.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
-----------------------
"Guarantor" means each of the parties named as such in the first paragraph
---------
of this Indenture and any Restricted Subsidiary which provides a Note Guarantee
pursuant to Section 4.20.
<PAGE>
"Holder" or "Noteholder" means the registered holder of any Note.
------ ----------
"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
<PAGE>
(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
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.
"Indenture" means this Indenture as originally executed or as it may be
---------
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"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.
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"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
<PAGE>
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 Payment Date" means each semiannual interest payment date on June
---------------------
15 and December 15 of each year, commencing June 15, 1999.
"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
<PAGE>
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 Section 4.06. For purposes of the definition of
"Unrestricted Subsidiary" and Section 4.04, 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.
"Non-U.S. Person" means a person who is not a "U.S. person" (as defined in
---------------
Regulation S).
<PAGE>
"Note Guarantee" means (i) any guarantee of the obligations of the Company
--------------
under this Indenture and the Notes by any Guarantor and (ii) any Subsidiary
Guarantee.
"Notes" means any of the securities, as defined in the first paragraph of
-----
the recitals hereof, that are authenticated and delivered under this Indenture.
For all purposes of this Indenture, the term "Notes" shall include the Notes
initially issued on the Closing Date, any Exchange Notes to be issued and
exchanged for any Notes pursuant to the Registration Rights Agreement and this
Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"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;
<PAGE>
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 (with a copy of the same to the Paying Agent)
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
is hereby appointed by the Company to, and 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.
"Officer" means, with respect to the Company, (i) the Chairman of the
-------
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer listed in
--------
clause (i) of the definition thereof and one Officer listed in clause (ii) of
the definition thereof or two officers listed in clause (i) of the definition
thereof. Each Officers' Certificate (other than certificates provided pursuant
to TIA Section 314(a)(4)) shall include the statements provided for in TIA
Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
--------------------
"Offshore Physical Notes" has the meaning provided in Section 2.01.
-----------------------
"Opinion of Counsel" means a written opinion signed by legal counsel
------------------
reasonably acceptable to the Trustee, who may be an employee of or counsel to
the Company, that meets the requirements of Section 11.04 hereof. Each such
Opinion of Counsel shall include the statements provided for in TIA Section
314(e).
"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.
----------------
<PAGE>
"Panini Notes" means debt securities to be issued by the Company pursuant
------------
to and in accordance with the Panini Guarantee; provided that the aggregate
amount of such debt securities does not exceed $27.0 million.
"Paying Agent" has the meaning provided in Section 2.04, except that, for
------------
the purposes of Article Eight, the Paying Agent shall not be the Company or a
Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes its successors and assigns and any additional Paying Agent.
"Payment Date" has the meaning provided in the definition of Offer to
------------
Purchase.
"Permanent Offshore Global Notes" has the meaning provided in Section 2.01.
-------------------------------
"Permitted Investment" means:
--------------------
(i) an Investment in the Company or a Guarantor or a Person which
will, upon the making of such Investment, become a Guarantor or be merged
or consolidated with or into or transfer or convey all or substantially all
its assets to, the Company or a 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
<PAGE>
clause (C)(1) of Section 4.04) 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 Section 4.08; and
(ix) an Investment in a Restricted Subsidiary which is not a
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 Section 4.04) 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 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
<PAGE>
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 Section 4.03, 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;
<PAGE>
(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 million.
"Person" means an individual, a corporation, a partnership, a limited
------
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
--------------
"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
<PAGE>
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.
"Preferred Stock" means, with respect to any Person, any and all shares,
---------------
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"principal" of a debt security, including the Notes, means the principal
---------
amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
------------------------
Notes in the form set forth in Section 2.02.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
---
"Redemption Date" means, when used with respect to any Note to be redeemed,
---------------
the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
----------------
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
---------
"Registration Rights Agreement" means 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.
"Registration Statement" means the Registration Statement as defined and
----------------------
described in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest Payment Date
-------------------
means the June 1 or December 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
------------
"Responsible Officer," when used with respect to the Trustee, means the
-------------------
president, any vice president, any assistant vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, any trust officer
or assistant trust officer or any other officer of the Trustee in its Corporate
Trust Office customarily performing functions similar to those performed by any
<PAGE>
of the above-designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.04.
-------------------
"Restricted Subsidiary" means any Subsidiary of the Company other than an
---------------------
Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"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.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Security Register" has the meaning provided in Section 2.04.
-----------------
"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.
<PAGE>
"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.
"Subsidiary Guarantee" has the meaning provided in Section 4.07.
--------------------
"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 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.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939 (15
--- -------------------
U.S. Code (s)(S) 77aaa-77bbbb), as in effect on the date this Indenture was
executed, except as provided in Section 9.06.
<PAGE>
"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.
"Trustee" means the party named as such in the first paragraph of this
-------
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
-----------------------------
amended and as codified in Title 11 of the United States Code, as amended from
time to time hereafter, or any successor federal bankruptcy law.
"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 Section
4.04 and (C) if applicable, the Incurrence of Indebtedness and the Investment
referred to in clause (A) of this proviso would be permitted under Section 4.03
and Section 4.04. 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 this 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.
<PAGE>
"U.S. Global Notes" has the meaning provided in Section 2.01.
-----------------
"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.
"U.S. Physical Notes" means the Notes issued in the form of permanent
-------------------
certificated Notes in registered form in substantially the form set forth in
Exhibit A to Institutional Accredited Investors which are not QIBs (excluding
Non-U.S. Persons) who purchased Notes pursuant to Regulation D of the Securities
Act.
"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.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
-------------------------------------------------
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"indenture securities" means the Notes;
--------------------
"indenture security holder" means a Holder or a Noteholder;
-------------------------
"indenture to be qualified" means this Indenture;
-------------------------
<PAGE>
"indenture trustee" or "institutional trustee" means the Trustee; and
----------------- ---------------------
"obligor" on the indenture securities means the Company or any other
-------
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in the
plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision;
(vii) all ratios and computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition of GAAP set
forth in Section 1.01; and
(viii) all references to Sections or Articles refer to Sections or
Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate of
---------------
authentication shall be substantially in the form annexed hereto as Exhibit A
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange agreements to which the
Company or the Guarantors are subject or usage. The Company
<PAGE>
shall approve the form of the Notes and any notation, legend or endorsement on
the Notes. Each Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the Notes annexed hereto
as Exhibit A shall constitute, and are hereby expressly made, a part of this
Indenture. To the extent applicable, the Company, each Guarantor and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued initially
in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "U.S. Global Notes"),
-----------------
registered in the name of the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on Regulation S
shall be issued initially in the form of one or more permanent global Notes in
registered form substantially in the form set forth in Exhibit A (the "Offshore
--------
Global Notes"), registered in the name of the nominee of the Depositary,
- - ------------
deposited with the Trustee, as custodian for the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Offshore Global Notes may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
Notes offered and sold in reliance on Regulation D under the Securities Act
shall be issued in the form of permanent certificated Notes in registered form
in substantially the form set forth in Exhibit A (the "U.S. Physical Notes").
-------------------
Notes issued pursuant to Section 2.07 in exchange for interests in the Offshore
Global Notes shall be in the form of permanent certificated Notes in registered
form substantially in the form set forth in Exhibit A (the "Offshore Physical
-----------------
Notes").
- - -----
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes." The U.S. Global Notes
--------------
and the Offshore Global Notes are sometimes referred to herein as the "Global
------
Notes."
- - -----
The definitive Notes shall be typed, printed, lithographed or engraved or
produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged
-------------------
for an Exchange Note or sold in connection with an effective Registration
Statement pursuant to the
<PAGE>
Registration Rights Agreement, (i) the U.S. Global Notes and U.S. Physical Notes
shall bear the legend set forth below on the face thereof and (ii) the Offshore
Physical Notes and Offshore Global Notes shall bear the legend set forth below
on the face thereof until (a) at least the 41st day after the Closing Date, (b)
receipt by the Company and the Trustee of a certificate substantially in the
form of Exhibit B hereto and (c) the Company shall have obtained a CUSIP or CINS
number (if then generally in use) with respect to the unlegended Offshore
Physical Note or Offshore Global Note, as the case may be.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3)
OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN "INSTITUTIONAL
ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD
REFERRED TO UNDER RULE 144(k) UNDER THE SECURITIES ACT AS IN EFFECT ON THE
DATE OF TRANSFER OF THIS NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (D)
OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM
REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE)
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
<PAGE>
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED
TO IN RULE 144(K) UNDER THE SECURITIES ACT AFTER THE ORIGINAL ISSUANCE OF
THE NOTE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE
REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS
CERTIFICATE TO THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL
ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS
USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN
THE NAME OF CEDE & CO. OR IN THE NAME OF SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO
ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
<PAGE>
SECTION 2.03. Execution, Authentication and Denominations. Subject to
-------------------------------------------
Article Four and applicable law, the aggregate principal amount of Notes which
may be authenticated and delivered under this Indenture is unlimited. The Notes
shall be executed by two Officers of the Company. The signature of these
Officers on the Notes may be by facsimile or manual signature in the name and on
behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office at
the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this Indenture,
the Trustee or an authenticating agent shall upon receipt of a Company Order
authenticate for original issue Notes in the aggregate principal amount
specified in such Company Order; provided that the Trustee shall be entitled to
receive an Officers' Certificate and an Opinion of Counsel of the Company in
connection with such authentication of Notes. Such Company Order shall specify
the amount of Notes to be authenticated and the date on which the original issue
of Notes is to be authenticated and, in case of an issuance of Notes pursuant to
Section 2.15, shall certify that such issuance is in compliance with Article
Four.
The Trustee may appoint an authenticating agent to authenticate Notes. An
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with the Company or the Guarantors or an
Affiliate of the Company or the Guarantors.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple
thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an
--------------------------
office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
---------
for payment (the "Paying Agent") and an office or agency where notices and
------------
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York and, in
the event the Notes are listed on the Luxembourg Stock Exchange, in Luxembourg.
The Company shall cause the Registrar to keep a register of the Notes and of
their transfer and exchange (the "Security Register"). The Security Register
-----------------
shall be in written form or any other form capable of being converted into
written form within a reasonable time. The Company may have one or more co-
Registrars and one or more additional Paying Agents.
<PAGE>
The Company shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture. The agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall give prompt written
notice to the Trustee of the name and address of any such Agent and any change
in the address of such Agent. If the Company fails to maintain a Registrar,
Paying Agent and/or agent for service of notices and demands, the Company shall
appoint the Trustee to act as, and the Trustee shall act as, such Registrar,
Paying Agent and/or agent for service of notices and demands. The Company may
remove any Agent upon written notice to such Agent and the Trustee; provided
that no such removal shall become effective until (i) the acceptance of an
appointment by a successor Agent to such Agent as evidenced by an appropriate
agency agreement entered into by the Company and such successor Agent and
delivered to the Trustee or (ii) notification to the Trustee that the Trustee
shall serve as such Agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso. The Company, any Subsidiary of the
Company, or any Affiliate of any of them may act as Paying Agent, Registrar or
co-Registrar, and/or agent for service of notice and demands.
The Company hereby initially appoints the Trustee as Registrar, Paying
Agent and authenticating agent. The Trustee shall preserve in as current a form
as is reasonably practicable the most recent list available to it of the names
and addresses of Holders and shall otherwise comply with TIA (S) 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee as of
each Regular Record Date and at such other times as the Trustee may reasonably
request the names and addresses of Holders as they appear in the Security
Register, including the aggregate principal amount of Notes held by each Holder.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 11:00
-----------------------------------
a.m. (New York City time) on each due date of the principal, premium, if any,
and interest on any Notes, the Company shall deposit with the Paying Agent money
in immediately available funds sufficient to pay such principal, premium, if
any, and interest so becoming due. The Company shall require each Paying Agent
other than the Trustee to agree in writing that such Paying Agent shall hold in
trust for the benefit of the Holders or the Trustee all money held by the Paying
Agent for the payment of principal of, premium, if any, and interest on the
Notes (whether such money has been paid to it by the Company or any other
obligor on the Notes), and such Paying Agent shall promptly notify the Trustee
of any default by the Company (or any other obligor on the Notes) in making any
such payment. The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and account for any funds disbursed, and the
Trustee may at any time during the continuance of any payment default, upon
written request to a Paying Agent, require such Paying Agent to pay all money
held by it to the Trustee and to account for any funds disbursed. Upon doing
so, the Paying Agent shall have no further liability for the money so paid over
to the Trustee. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying Agent, it will, on or before each due
date of any principal of, premium, if any, or interest on the Notes, segregate
and hold in a separate trust fund for the benefit of the Holders a sum of money
sufficient to pay such principal, premium, if any, or interest so becoming due
until such sum of money shall be paid to such Holders or otherwise disposed of
as provided in this Indenture, and will promptly notify the Trustee of its
action or failure to act.
<PAGE>
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
---------------------
registered form. A Holder may transfer a Note only by written application to
the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar in the
Security Register. Prior to the registration of any transfer by a Holder as
provided herein, the Company, the Trustee, and any agent of the Company shall
treat the person in whose name the Note is registered as the owner thereof for
all purposes whether or not the Note shall be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent) and that ownership of a beneficial interest in the
Note shall be required to be reflected in a book entry. When Notes are
presented to the Registrar or a co-Registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations (including an exchange of Notes for Exchange Notes),
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met (including that such Notes are
duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Trustee and Registrar duly executed by the Holder thereof or
by an attorney who is authorized in writing to act on behalf of the Holder);
provided that no exchanges of Notes for Exchange Notes shall occur until a
Registration Statement shall have been declared effective by the Commission and
that any Notes that are exchanged for Exchange Notes shall be cancelled by the
Trustee. To permit registrations of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Notes at the Registrar's request. No
service charge shall be made for any registration of transfer or exchange or
redemption of the Notes, but the Company may require payment of a sum sufficient
to cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other similar governmental
charge payable upon exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the transfer of
or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S.
--------------------------------------
Global Notes and Offshore Global Notes initially shall (i) be registered in the
name of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 2.02.
<PAGE>
Members of, or participants in, the Depositary ("Agent Members") shall have
-------------
no rights under this Indenture with respect to any Global Note held on their
behalf by the Depositary, or the Trustee as its custodian, or under such Global
Note, and the Depositary may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such Global Note
for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall
prevent the Company, the Trustee or any agent of the Company or the Trustee,
from giving effect to any written certification, proxy or other authorization
furnished by the Depositary or impair, as between the Depositary and its Agent
Members, the operation of customary practices governing the exercise of the
rights of a holder of any Note.
(b) Transfers of a Global Note shall be limited to transfers of such Global
Note in whole, but not in part, to the Depositary, its successors or their
respective nominees. Interests of beneficial owners in Global Notes may be
transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Notes or the Offshore Global
Notes, as the case may be, if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the U.S. Global Notes or the
Offshore Global Notes, as the case may be, and a successor depositary is not
appointed by the Company within 90 days of such notice, (ii) an Event of Default
has occurred and is continuing and the Registrar has received a written request
from the Depositary or (iii) in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is transferred
to a person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in such Global Note and become an
interest in such other Global Note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
(d) In connection with any transfer of a portion of the beneficial
interests in a Global Note to beneficial owners pursuant to paragraph (b) of
this Section 2.07, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of such Global Note in an amount equal to
the principal amount of the beneficial interest in such Global Note to be
transferred, and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more U.S. Physical Notes or Offshore Physical Notes, as the
case may be, of like tenor and amount.
(e) In connection with the transfer of the U.S. Global Notes or the
Offshore Global Notes, in whole, to beneficial owners pursuant to paragraph (b)
of this Section 2.07, the U.S. Global Notes or Offshore Global Notes, as the
case may be, shall be deemed to be surrendered to the Trustee for cancellation,
and the Company shall execute, and the Trustee shall authenticate
<PAGE>
and deliver, to each beneficial owner identified by the Depositary in exchange
for its beneficial interest in the U.S. Global Notes or Offshore Global Notes,
as the case may be, an equal aggregate principal amount of U.S. Physical Notes
or Offshore Physical Notes, as the case may be, of authorized denominations.
(f) Any U.S. Physical Note delivered in exchange for an interest in the
U.S. Global Notes pursuant to paragraph (b), (d) or (e) of this Section 2.07
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the U.S. Physical Note set
forth in Section 2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest in the
Offshore Global Notes pursuant to paragraph (b), (d) or (e) of this Section 2.07
shall, except as otherwise provided by paragraph (f) of Section 2.08, bear the
legend regarding transfer restrictions applicable to the Offshore Physical Note
set forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Notes.
SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
---------------------------
exchanged for an Exchange Note or sold in connection with an effective
Registration Statement pursuant to the Registration Rights Agreement, the
following provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The following
-------------------------------------------------------
provisions shall apply with respect to the registration of any proposed transfer
of a Note to any Institutional Accredited Investor which is not a QIB (excluding
Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note, whether or
not such Note bears the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule 144(k) under the
Securities Act or (y) the proposed transferee has delivered to the
Registrar (A) a certificate substantially in the form of Exhibit C hereto
and (B) if the aggregate principal amount of the Notes being transferred is
less than $100,000, an opinion of counsel acceptable to the Company that
such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Notes, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Notes in an
amount equal to the principal amount of the beneficial interest in the U.S.
Global Notes
<PAGE>
to be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Notes of like tenor and
amount.
(b) Transfers to QIBs. The following provisions shall apply with respect
-----------------
to the registration of any proposed transfer of a Note to a QIB (excluding Non-
U.S. Persons):
(i) If the Note to be transferred consists of (x) either Offshore
Physical Notes prior to the removal of the Private Placement Legend or U.S.
Physical Notes, the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided for
on the form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed the certification
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that it is purchasing the Note for
its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a QIB within the
meaning of Rule 144A and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order to
claim the exemption from registration provided by Rule 144A or (y) an
interest in the U.S. Global Notes, the transfer of such interest may be
effected only through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the Note to be
transferred consists of U.S. Physical Notes, upon receipt by the Registrar
of the documents referred to in paragraph (i) above and instructions given
in accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of U.S. Global Notes in an amount equal to the
principal amount of the U.S. Physical Notes to be transferred, and the
Trustee shall cancel the U.S. Physical Notes so transferred.
(c) Transfers of Interests in the Offshore Global Notes or Offshore
---------------------------------------------------------------
Physical Notes. The following provisions shall apply with respect to any
- - --------------
transfer of interests in Offshore Global Notes or Offshore Physical Notes:
(i) prior to the removal of the Private Placement Legend from the
Offshore Global Notes or Offshore Physical Notes pursuant to Section 2.02,
the Registrar shall refuse to register such transfer unless such transfer
complies with Section 2.08(b) or Section 2.08(d), as the case may be, and
(ii) after such removal, the Registrar shall register the transfer of
any such Note without requiring any additional certification.
<PAGE>
(d) Transfers to Non-U.S. Persons at Any Time. The following provisions
-----------------------------------------
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
(i) The Registrar shall register any proposed transfer to any Non-
U.S. Person if the Note to be transferred is a U.S. Physical Note or an
interest in U.S. Global Notes, upon receipt of a certificate substantially
in the form of Exhibit D hereto from the proposed transferor.
(ii) (a) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Notes, upon receipt by the Registrar
of (x) the documents, if any, required by paragraph (i) and (y)
instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the U.S. Global Notes in an
amount equal to the principal amount of the beneficial interest in the U.S.
Global Notes to be transferred, and (b) if the proposed transferee is an
Agent Member, upon receipt by the Registrar of instructions given in
accordance with the Depositary's and the Registrar's procedures, the
Registrar shall reflect on its books and records the date and an increase
in the principal amount of the Offshore Global Notes in an amount equal to
the principal amount of the U.S. Physical Notes or the U.S. Global Notes,
as the case may be, to be transferred, and the Trustee shall cancel the
Physical Note, if any, so transferred or decrease the amount of the U.S.
Global Notes.
(e) Private Placement Legend. Upon the transfer, exchange or replacement
------------------------
of Notes not bearing the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon the transfer, exchange
or replacement of Notes bearing the Private Placement Legend, the Registrar
shall deliver only Notes that bear the Private Placement Legend unless (i) the
Private Placement Legend is no longer required by Section 2.02, (ii) the
circumstances contemplated by paragraph (a)(i)(x) of this Section 2.08 exist or
(iii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(f) General. By its acceptance of any Note bearing the Private Placement
-------
Legend, each Holder of such a Note acknowledges the restrictions on transfer of
such Note set forth in this Indenture and in the Private Placement Legend and
agrees that it will transfer such Note only as provided in this Indenture. The
Registrar shall not register a transfer of any Note unless such transfer
complies with the restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes, each Holder agrees by its
acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided
<PAGE>
that the Registrar shall not be required to determine (but may rely on a
determination made by the Company with respect to) the sufficiency of any such
certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other written
communications received pursuant to Section 2.07 or this Section 2.08. The
Company, at its sole cost and expense, shall have the right to inspect and make
copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to
-----------------
the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, then, in the absence of written notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall issue and the Trustee shall authenticate a replacement Note of like tenor
and principal amount and bearing a number not contemporaneously outstanding;
provided that the requirements of this Section 2.09 are met. If required by the
Trustee or the Company, an indemnity bond must be furnished that is sufficient
in the judgment of both the Trustee and the Company to protect the Company, the
Trustee or any Agent from any loss that any of them may suffer if a Note is
replaced. The Company may charge such Holder for its expenses and the expenses
of the Trustee in replacing a Note. In case any such mutilated, lost, destroyed
or wrongfully taken Note has become or is about to become due and payable, the
Company in its discretion may pay such Note instead of issuing a new Note in
replacement thereof.
Every replacement Note is an additional obligation of the Company and each
Guarantor and shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
-----------------
Notes that have been authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation and those described in this Section
2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be outstanding
unless and until the Trustee and the Company receive proof satisfactory to them
that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the Company)
holds on the maturity date money sufficient to pay Notes payable on that date,
then on and after that date such Notes cease to be outstanding and interest on
them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of its
Affiliates holds such Note, provided, however, that in determining whether the
Holders of the requisite principal amount of the outstanding Notes have given
any request, demand, authorization, direction, notice,
<PAGE>
consent or waiver hereunder, Notes owned by the Company or any other obligor
upon the Notes or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Trustee has actual knowledge to be so owned shall be so disregarded. Notes so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or of such
other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
---------------
delivery, the Company may prepare and execute and the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have insertions, substitutions, omissions and other
variations determined to be appropriate by the Officers executing the temporary
Notes, as evidenced by their execution of such temporary Notes. If temporary
Notes are issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged,
the temporary Notes shall be entitled to the same benefits under this Indenture
as definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may deliver to the
------------
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use
-------------
"CUSIP," "CINS" or "ISIN" numbers (if then generally in use), and the Company
and the Trustee shall use CUSIP, CINS or ISIN numbers, as the case may be, in
notices of redemption or exchange as a convenience to Holders; provided that any
such notice shall state that no representation is made as to the correctness of
such numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company shall promptly notify
the Trustee of any change in "CUSIP," "CINS" or "ISIN" numbers for the Notes.
<PAGE>
SECTION 2.14. Defaulted Interest. If the Company defaults in a payment of
------------------
interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay, the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the 15th day next preceding the date fixed by the
Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The Company may, subject to
----------------------------
Article Four of this Indenture and applicable law, issue additional Notes under
this Indenture. The Notes issued on the Closing Date and any additional Notes
subsequently issued shall be treated as a single class for all purposes under
this Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) 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:
Redemption
Year Price
---- -----
2004................................ 106.000%
2005................................ 104.000%
2006................................ 102.000%
2007 and thereafter................. 100.000%
(b) In addition, 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
<PAGE>
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 is mailed within 60 days after such sale of Capital Stock.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes
------------------
pursuant to Section 3.01, it shall notify the Trustee in writing of the
Redemption Date and the principal amount of Notes to be redeemed and the clause
of this Indenture pursuant to which redemption shall occur.
The Company shall give each notice provided for in this Section 3.02 in an
Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of the
---------------------------------
Notes are to be redeemed at any time, the Trustee shall select the Notes to be
redeemed in compliance with the requirements, as certified to it by the Company,
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 or
automated quotation system, by lot or by such other method as the Trustee in its
sole discretion shall deem fair and appropriate; provided that no Note of $1,000
in principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
--------------------
Notes pursuant to Section 3.01, at least 30 days but not more than 60 days
before a Redemption Date, the Company shall mail a notice of redemption by
first-class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
<PAGE>
(iv) that Notes called for redemption must be surrendered to the
Paying Agent in order to collect the Redemption Price;
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date and the only remaining right of the Holders is to
receive payment of the Redemption Price plus accrued interest to the
Redemption Date upon surrender of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion of the
principal amount (equal to $1,000 in principal amount or any integral
multiple thereof) of such Note to be redeemed and that, on and after the
Redemption Date, upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion thereof will be reissued;
and
(vii) that, if any Note contains a CUSIP, CINS or ISIN number as
provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may be
placed only on the other identification numbers printed on the Notes.
At the Company's request (which request may be revoked by the Company at
any time prior to the time at which the Trustee shall have given such notice to
the Holders), made in writing to the Trustee at least 45 days (or such shorter
period as shall be satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption in the name and at the expense of
the Company. If, however, the Company gives such notice to the Holders, the
Company shall concurrently deliver to the Trustee an Officers' Certificate
stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption
------------------------------
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued interest,
if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether or
not the Holder receives the notice. In any event, failure to give such notice,
or any defect therein, shall not affect the validity of the proceedings for the
redemption of Notes held by Holders to whom such notice was properly given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any Redemption
---------------------------
Date, the Company shall deposit with the Paying Agent (or, if the Company is
acting as its own Paying Agent, shall segregate and hold in trust as provided in
Section 2.05) money sufficient to pay the
<PAGE>
Redemption Price of and accrued interest on all Notes to be redeemed on that
date other than Notes or portions thereof called for redemption on that date
that have been delivered by the Company to the Trustee for cancellation.
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
--------------------------------------
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; provided that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that is
----------------------
redeemed in part, the Company shall execute and the Trustee shall authenticate
and deliver to the Holder without service charge, a new Note equal in principal
amount to the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay the principal of,
----------------
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent, if any,
for the Notes.
The Company shall pay interest on overdue principal and premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain
-------------------------------
in the Borough of Manhattan, The City of New York and, in the event the Notes
are listed on the
<PAGE>
Luxembourg Stock Exchange, in Luxembourg, an office or agency where Notes may be
surrendered for registration of transfer or exchange or for presentation for
payment and where notices and demands to or upon the Company in respect of the
Notes and this Indenture may be served. The Company will give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided that no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of Manhattan, The City
of New York and, in the event the Notes are listed on the Luxembourg Stock
Exchange, in Luxembourg, for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of the
Trustee as such office of the Company in accordance with Section 2.04.
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not, and
--------------------------
shall 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 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 Guarantor outstanding at any
time in an aggregate principal amount (together with refinancings thereof)
not to exceed the greater of (x) $70 million, less any amount of such
Indebtedness permanently repaid as provided under Section 4.11, 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
<PAGE>
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 Guarantor be refinanced by
means of any Indebtedness of any Restricted Subsidiary that is not a
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
<PAGE>
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 under Section 8.02 and Section 8.03;
(vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company or any Guarantor by any Restricted Subsidiary provided the
Guarantee of such Indebtedness is permitted by and made in accordance with
Section 4.07;
(vii) Indebtedness under the Panini Notes and the Excess
Administration Expense Claims Note;
(viii) Indebtedness Incurred by the Company or any Guarantor in an
aggregate amount outstanding at any time (including refinancings thereof)
not to exceed $20 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 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 million; and
(x) Indebtedness of the Company or any 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 million, less any amount of such
Indebtedness permanently repaid as provided under Section 4.11.
(b) Notwithstanding any other provision of this Section 4.03, the maximum
amount of Indebtedness that the Company or a Restricted Subsidiary may Incur
pursuant to this Section 4.03 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.
<PAGE>
(c) For purposes of determining any particular amount of Indebtedness
under this Section 4.03, (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 Section 4.09
shall not be treated as Indebtedness. For purposes of determining compliance
with this Section, 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).
SECTION 4.04. Limitation on Restricted Payments. The Company shall not,
---------------------------------
and shall 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 part (a) of Section 4.03 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
<PAGE>
(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 this
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 this 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;
(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
<PAGE>
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 Section 4.03;
(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 this
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 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;
<PAGE>
(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 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 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 million outstanding at
any one time; or
(xii) other Restricted Payments in an aggregate amount not to exceed
$5 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) of the first paragraph of this Section 4.04) 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 Section 4.04 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,
<PAGE>
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
Section 4.04 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 Section, 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).
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries. The Company shall not, and shall 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 this 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
Section 4.05, (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
<PAGE>
otherwise prohibited by this 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 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 Section 4.05 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 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.
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of
-------------------------------------------------------
Restricted Subsidiaries. The Company shall not sell, and shall 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 Section
4.04 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
Section 4.11.
<PAGE>
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted
---------------------------------------------------
Subsidiaries. The Company shall not permit any Restricted Subsidiary that is
- - ------------
not a Guarantor, directly or indirectly, to Guarantee any Indebtedness of the
Company or any 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 this 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 this 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.
SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates.
-----------------------------------------------------------
The Company shall not, and shall 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:
<PAGE>
(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;
(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 Section 4.04;
(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 Existing
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
<PAGE>
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 Section 4.08 and not covered
by clauses (ii) through (xi) of this paragraph, (a) the aggregate amount of
which exceeds $1 million in value, must be approved or determined to be fair in
the manner provided for in clause (i)(A) or (B) of this Section 4.08 and (b) the
aggregate amount of which exceeds $5 million in value, must be determined to be
fair in the manner provided for in clause (i)(B) of this Section 4.08.
SECTION 4.09. Limitation on Liens. The Company shall not, and shall 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 this
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 Section 4.03; 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;
<PAGE>
(v) Liens securing Indebtedness Incurred under clause (i) of the
second paragraph of Section 4.03;
(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.
SECTION 4.10. Limitation on Sale-Leaseback Transactions. The Company
-----------------------------------------
shall not, and shall 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 clause (i) of the second paragraph of
Section 4.11.
SECTION 4.11. Limitation on Asset Sales. The Company shall not, and shall
-------------------------
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:
<PAGE>
(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
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
Section.
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
Section 4.11 totals at least $5 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 Section 4.11, 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.
SECTION 4.12. 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
<PAGE>
required to make an Offer to Purchase pursuant to this Section 4.12 if a third
party makes an Offer to Purchase in compliance with this Section and repurchases
all Notes validly tendered and not withdrawn under such Offer to Purchase.
SECTION 4.13. Existence. Subject to Articles Four and Five of this
---------
Indenture, the Company shall do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each Restricted Subsidiary and the
rights (whether pursuant to charter, partnership certificate, agreement, statute
or otherwise), licenses and franchises of the Company and each Restricted
Subsidiary; provided that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.14. Payment of Taxes and Other Claims. The Company shall pay or
---------------------------------
discharge and shall cause each of its Subsidiaries to pay or discharge, or cause
to be paid or discharged, before the same shall become delinquent (i) all
material taxes, assessments and governmental charges levied or imposed upon (a)
the Company or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon the property of the Company or
any such Subsidiary; provided that the Company shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established.
SECTION 4.15. Maintenance of Properties and Insurance. The Company shall
---------------------------------------
cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.15 shall prevent the Company or any Restricted Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Company, desirable in the conduct of the business of the Company or such
Restricted Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with
<PAGE>
reputable insurers or with the government of the United States of America, or an
agency or instrumentality thereof, in such amounts, with such deductibles and by
such methods as shall be customary for corporations similarly situated in the
industry in which the Company or any such Restricted Subsidiary, as the case may
be, is then conducting business.
SECTION 4.16. Notice of Defaults. In the event that any Officer becomes
------------------
aware of any Default or Event of Default, the Company shall promptly deliver to
the Trustee an Officers' Certificate specifying such Default or Event of
Default.
SECTION 4.17. Compliance Certificates. (a) The Company shall deliver to
-----------------------
the Trustee, within 45 days after the end of each fiscal quarter (90 days after
the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days after the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company 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 this Indenture and that the Company has complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.17, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If any of the officers of
the Company signing such certificate has knowledge of such a Default or Event of
Default, the certificate shall describe any such Default or Event of Default and
its status. The first certificate to be delivered pursuant to this Section
4.17(a) shall be for the first fiscal quarter beginning after the execution of
this Indenture.
(b) The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year, beginning with the fiscal year in which this Indenture was
executed, a certificate signed by the Company's independent certified public
accountants stating (i) that their audit examination has included a review of
the terms of this Indenture and the Notes as they relate to accounting matters,
(ii) that they have read the most recent Officers' Certificate delivered to the
Trustee pursuant to paragraph (a) of this Section 4.17 and (iii) whether, in
connection with their audit examination, anything came to their attention that
caused them to believe that the Company was not in compliance with any of the
terms, covenants, provisions or conditions of Article Four and Section 5.01 of
this Indenture as they pertain to accounting matters and, if any Default or
Event of Default has come to their attention, specifying the nature and period
of existence thereof; provided that such independent certified public
accountants shall not be liable in respect of such statement by reason of any
failure to obtain knowledge of any such Default or Event of Default that would
not be disclosed in the course of an audit examination conducted in accordance
with generally accepted auditing standards in effect at the date of such
examination.
SECTION 4.18. 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
<PAGE>
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 Exchange Act 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. The Company also
shall comply with the other provisions of TIA Section 314(a).
SECTION 4.19. Waiver of Stay, Extension or Usury Laws. The Company
---------------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes as contemplated herein,
wherever enacted, now or at any time hereafter in force, or that may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 4.20. Issuance of Subsidiary Guarantees by Restricted
-----------------------------------------------
Subsidiaries. Each Subsidiary of the Company other than a Foreign Subsidiary
- - ------------
which becomes a Restricted Subsidiary after the date of this Indenture and has
assets in excess of $1,000 shall, together with the Company and each other
Guarantor, not later than 30 days after such Subsidiary becomes a Restricted
Subsidiary, execute and deliver a supplemental indenture to this Indenture
providing for a Note Guarantee of payment of the Notes by such Restricted
Subsidiary pursuant to Article Ten.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company or Guarantors May Merge, Etc. Neither the
-----------------------------------------
Company nor any 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 Guarantor, as the case may be,
unless:
(i) the Company or such Guarantor, as the case may be, shall be the
continuing Person, or the Person (if other than the Company or such
Guarantor) formed by such consolidation or into which the Company or such
Guarantor is merged or that acquired or leased such property and assets of
the Company or such 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 this Indenture or (B) such Guarantor under this
Indenture, as the case may be;
<PAGE>
(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
Section 4.03; 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 this 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
Guarantor and each Restricted Subsidiary which has provided a Subsidiary
Guarantee, unless such Guarantor or Restricted Subsidiary is the Person
with which the Company has entered into a transaction under this Section
5.01, 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 this 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
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 Guarantors where the Company or a Guarantor is
the continuing Person.
<PAGE>
SECTION 5.02. Successor Substituted. Upon any consolidation or merger, or
---------------------
any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company or any Guarantor in
accordance with Section 5.01 of this Indenture, the successor Person formed by
such consolidation or into which the Company or any Guarantor is merged or to
which such sale, conveyance, transfer, lease or other disposition is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company or such Guarantor under this Indenture with the same effect as if
such successor Person had been named as the Company or such Guarantor herein;
provided that the Company shall not be released from its obligation to pay the
principal of, premium, if any, or interest on the Notes and such Guarantor shall
not be released from its Note Guarantee in the case of a lease of all or
substantially all of its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. The following events will be defined as
-----------------
"Events of Default" in this 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 this
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company and any Guarantor or the
failure to make or consummate an Offer to Purchase in accordance with
Section 4.11 or Section 4.12;
(d) the Company or any Guarantor defaults in the performance of or
breaches any other covenant or agreement of the Company in this 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
<PAGE>
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 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 this Indenture, any Guarantor repudiates
its obligations under any Note Guarantee.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event
------------
of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to the Company or any Guarantor) occurs and is continuing under this
Indenture, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding, by written notice to the
<PAGE>
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)
of Section 6.01 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) of
Section 6.01 occurs with respect to the Company or any 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.
At any time after such declaration of acceleration, but before a judgment
or decree for the payment of the money due has been obtained by the Trustee, 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 (a)
the Company has paid or deposited with the Trustee a sum sufficient to pay (i)
all sums paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and
premium, if any, on any Notes that have become due otherwise than by such
declaration or occurrence of acceleration and interest thereon at the rate
prescribed therefor by such Notes, and (iv) to the extent that payment of such
interest is lawful, interest upon overdue interest, if any, at the rate
prescribed therefor by such Notes, (b) all existing Events of Default, other
than the non-payment of the principal of, premium, if any, and accrued interest
on the Notes that have become due solely by such declaration of acceleration,
have been cured or waived and (c) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
--------------
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in principal amount of the outstanding Notes shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07 and
-----------------------
9.02, the Holders of at least a majority in principal amount of the outstanding
Notes, by notice to the Trustee, may waive an existing Default or Event of
Default and its consequences, except a Default
<PAGE>
in the payment of principal of, premium, if any, or interest on any Note as
specified in clause (a) or (b) of Section 6.01 or in respect of a covenant or
provision of this Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding Note affected. Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or Event of Default
or impair any right consequent thereto.
SECTION 6.05. Control by Majority. 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 this 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.
SECTION 6.06. Limitation on Suits. A Holder may not institute any
-------------------
proceeding, judicial or otherwise, with respect to this Indenture or the Notes,
or for the appointment of a receiver or trustee, or for any other remedy
hereunder, unless:
(i) the Holder has previously given the Trustee written notice of a
continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of
outstanding Notes shall have made a written request to the Trustee to
pursue such remedy;
(iii) such Holder or Holders offer the Trustee indemnity reasonably
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.
For purposes of Section 6.05 of this Indenture and this Section 6.06, the
Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
<PAGE>
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
------------------------------------
other provision of this Indenture, 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, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
--------------------------
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such
--------------------------------
proofs of claim and other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, and any other amounts due the Trustee under Section
7.07) and the Holders allowed in any judicial proceedings relative to the
Company (or any other obligor of the Notes), its creditors or its property and
shall be entitled and empowered to collect and receive any monies, securities or
other property payable or deliverable upon conversion or exchange of the Notes
or upon any such claims and to distribute the same, and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07. Nothing herein contained shall be deemed to empower
the Trustee to authorize or consent to, or accept or adopt on behalf of any
Holder, any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
----------
this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
<PAGE>
Second: to Holders for amounts then due and unpaid for principal of,
premium, if any, and interest on the Notes in respect of which or for the
benefit of which such money has been collected, ratably, without preference
or priority of any kind, according to the amounts due and payable on such
Notes for principal, premium, if any, and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
---------------------
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any
----------------------------------
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then, and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Company, Trustee and the Holders shall continue as though no such proceeding had
been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the
----------------------------
Trustee or of any Holder to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the Trustee or to the
<PAGE>
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
-------
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not assured to it.
Whether or not herein expressly so provided, every provision of this Indenture
relating to the conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Article Seven.
Except during the continuance of a Default, the Trustee will not be liable,
except for the performance of such duties as are specifically set forth in this
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 this Indenture as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
SECTION 7.02. Certain Rights of Trustee. Subject to TIA Sections 315(a)
-------------------------
through (d):
(i) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper person;
(ii) before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel, which shall conform to
Section 11.04. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any attorney or
agent appointed with due care by it hereunder;
(iv) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable security or indemnity
<PAGE>
against the costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
(v) the Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers, provided that the Trustee's conduct does not constitute
negligence or bad faith;
(vi) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate; and
(vii) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled, at the Company's sole cost and expense, to examine the
books, records and premises of the Company personally or by agent or
attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
----------------------------
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
--------------------
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of Default
-----------------
occurs and is continuing and if such Default or Event of Default is known to any
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters, the Trustee shall mail to each Holder in
the manner and to the extent provided in TIA Section 313(c) notice of the
Default or Event of Default within 45 days after it occurs, unless such Default
or Event of Default has been cured; provided, however, that, except in the case
of a default in the payment of the principal of, premium, if any, or interest on
any Note, the Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a trust committee of
directors and/or a Responsible Officer of the Trustee in good faith determine
that the withholding of such notice is in the interest of the Holders.
<PAGE>
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
-----------------------------
May 15, beginning with May 15, 1999, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
A copy of each report at the time of its mailing to the Holders of
Securities shall be mailed to the Company and filed with the Commission and each
stock exchange on which the Securities are listed in accordance with TIA Section
313(d). The Company shall promptly notify the Trustee when the Securities are
listed on any stock exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
--------------------------
Trustee such compensation as shall be agreed upon in writing, from time to time,
for its services hereunder. The compensation of the Trustee shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by the Trustee without
negligence or bad faith on its part. Such expenses shall include the reasonable
compensation and expenses of the Trustee's agents and counsel.
The Company and each of the Guarantors, jointly and severally, shall
indemnify the Trustee, its directors, officers, agents and employees for, and
hold it harmless against, any loss or liability, cost or expense incurred by it
without negligence or bad faith on its part in connection with the acceptance or
administration of this Indenture and its duties under this Indenture and the
Notes, including, without limitation, the costs and expenses of defending itself
against any claim or liability and of complying with any process served upon it
or any of its officers in connection with the exercise or performance of any of
its powers or duties under this Indenture and the Notes. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder, unless the Company is materially prejudiced thereby.
The Company shall defend the claim and the Trustee shall cooperate in the
defense provided, however, that the Trustee shall have the right to defend such
claim if, upon the advice of counsel, its interests may be prejudiced by the
conduct of such defense by the Company. Unless otherwise set forth herein, the
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held in trust to pay principal of, premium, if any, and interest on particular
Notes.
If the Trustee incurs expenses or renders services after the occurrence of
an Event of Default specified in clause (g) or (h) of Section 6.01, the expenses
and the compensation for the
<PAGE>
services will be intended to constitute expenses of administration under Title
11 of the United States Bankruptcy Code or any applicable federal or state law
for the relief of debtors.
The provisions of this Section 7.07 shall survive the termination of this
Indenture.
The Trustee shall comply with the provisions of TIA Section 313(b)(2) to
the extent applicable.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
----------------------
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign at any time by so notifying the Company in writing
at least 30 days prior to the date of the proposed resignation. The Holders of
a majority in principal amount of the outstanding Notes may remove the Trustee
by so notifying the Trustee in writing and may appoint a successor Trustee with
the consent of the Company. The Company may remove the Trustee if: (i) the
Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a
bankrupt or an insolvent; (iii) a receiver or other public officer takes charge
of the Trustee or its property; or (iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may, at the expense
of the Company, petition any court of competent jurisdiction for the appointment
of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Immediately after the delivery of
such written acceptance, subject to the lien provided in Section 7.07, (i) the
retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, (ii) the resignation or removal of the retiring Trustee shall
become effective and (iii) the successor Trustee shall have all the rights,
powers and duties of the Trustee under this Indenture. A successor Trustee
shall mail notice of its succession to each Holder. No successor Trustee shall
accept its appointment unless at the time of such acceptance such successor
Trustee shall be qualified and eligible under this Article.
If the Trustee is no longer eligible under Section 7.10 or shall fail to
comply with TIA Section 310(b), any Holder who satisfies the requirements of TIA
Section 310(b) may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor
<PAGE>
Trustee. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 7.08, the Trustee shall resign immediately
in the manner and with the effect provided in this Section.
The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08,
the Company's obligation under Section 7.07 shall continue for the benefit of
the retiring Trustee. Upon the Trustee's resignation or removal, the Company
shall promptly pay the Trustee all amounts owed by the Company to the Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
--------------------------------
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein, provided such corporation shall be otherwise qualified and eligible
under this Article.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee who
-----------
satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a
combined capital and surplus of at least $25 million as set forth in its most
recent published annual report of condition that is subject to the requirements
of applicable Federal or state supervising or examining authority. If at any
time the Trustee shall cease to be eligible in accordance with the provisions of
this Section, the Trustee shall resign immediately in the manner and with the
effect specified in this Article.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
-------------------
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as otherwise
------------------------------------
provided in this Section 8.01, the Company may terminate its obligations under
the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other than
destroyed, lost or stolen Notes that have been replaced or Notes that are
paid pursuant to Section 4.01 or
<PAGE>
Notes for whose payment money or securities have theretofore been held in
trust and thereafter repaid to the Company, as provided in Section 8.05)
have been delivered to the Trustee for cancellation and the Company has
paid all sums payable by it hereunder; or
(ii) (A) the Notes mature within one year or all of them are to be
called for redemption within one year under arrangements satisfactory to
the Trustee for giving the notice of redemption, (B) the Company
irrevocably deposits in trust with the Trustee during such one-year period,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the benefit of the
Holders for that purpose, money or U.S. Government Obligations sufficient
(in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee), without consideration of any reinvestment of any interest
thereon, to pay principal, premium, if, any, and interest on the Notes to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, (C) no Default or Event of Default with respect to
the Notes shall have occurred and be continuing on the date of such
deposit, (D) such deposit will not result in a breach or violation of, or
constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound and (E)
the Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations under
Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.04, 8.05 and 8.06 shall survive. After any such irrevocable
deposit, the Trustee upon request shall acknowledge in writing the discharge of
the Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture. 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 date of the deposit referred to
in clause (A) of this Section 8.02, and the provisions of this 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), and the Trustee, at the expense of the Company,
shall execute proper instruments acknowledging the same if:
(A) with reference to this Section 8.02, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the
<PAGE>
requirements of Section 7.10) and conveyed all right, title and interest to
the Trustee for the benefit of the Holders, under the terms of an
irrevocable trust agreement in form and substance satisfactory to the
Trustee as trust funds in trust, specifically pledged to the Trustee for
the benefit of the Holders as security for payment of the principal of,
premium, if any, and interest, if any, on the Notes, and dedicated solely
to, the benefit of the Holders, in and to (1) money in an amount, (2) U.S.
Government Obligations that, through the payment of interest, premium, if
any, and principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment referred
to in this clause (A), money in an amount or (3) a combination thereof in
an amount sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, without consideration of
the reinvestment of such interest and after payment of all federal, state
and local taxes or other charges and assessments in respect thereof payable
by the Trustee, the principal of, premium, if any, and interest on the
outstanding Notes on the Stated Maturity of such principal or interest;
provided that the Trustee shall have been irrevocably instructed to apply
such money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect to
the Notes;
(B) the Company has delivered to the Trustee (1) 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 Section 8.02 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 option had not been exercised, which
Opinion of Counsel shall 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 (2) an Opinion of Counsel to the
effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and that after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the United States Bankruptcy Code, after one year following the deposit),
the trust funds 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 in a case commenced by or against the Company under either
such statute, and either (I) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (II) if a court were to rule
under any such law in any case or proceeding that the trust funds remained
property of the Company, (a) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent not paid
to the Holders, the Trustee will hold, for the benefit of the
<PAGE>
Holders, a valid and perfected security interest in such trust funds that
is not avoidable in bankruptcy or otherwise except for the effect of
Section 552(b) of the United States Bankruptcy Code on interest on the
trust funds accruing after the commencement of a case under such statute
and (b) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in such
case or proceeding;
(C) immediately after giving effect to such deposit, on a pro forma
basis, no Default or 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 such date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, this Indenture or
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 is permitted by Article Eleven;
(D) if the Notes are then 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; and
(E) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, in each case stating that all conditions
precedent provided for herein relating to the defeasance contemplated by
this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one-
year) period referred to in clause (B)(2) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 8.04, 8.05, 8.06 and the rights, powers, trusts, duties
and immunities of the Trustee hereunder and Article Eleven (with respect to
payments in respect of Senior Subordinated Obligations other than with the
assets held in trust as described in this Section 8.02) shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.04, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (B)(1)
of this Section 8.02 is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
4.01, then the Company's obligations under such Section 4.01 shall cease upon
delivery to the Trustee of such ruling or Opinion of Counsel and compliance with
the other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
<PAGE>
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit to
---------------------------------
comply with any term, provision or condition set forth in clauses (iii) and (iv)
of Section 5.01 and Sections 4.03 through 4.11 and Section 4.20 and clause (c)
of Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01, clause
(d) of Section 6.01 with respect to Sections 4.01, 4.02 and 4.12 through 4.19
and clauses (e) and (f) of Section 6.01 shall be deemed not to be Events of
Default, in each case with respect to the outstanding Notes if:
(i) with reference to this Section 8.03, the Company has irrevocably
deposited or caused to be irrevocably deposited with the Trustee (or
another trustee satisfying the requirements of Section 7.10) and conveyed
all right, title and interest to the Trustee for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust, specifically
pledged to the Trustee for the benefit of the Holders as security for
payment of the principal of, premium, if any, and interest, if any, on the
Notes, and dedicated solely to, the benefit of the Holders, in and to (A)
money in an amount, (B) U.S. Government Obligations that, through the
payment of interest, premium, if any, and principal in respect thereof in
accordance with their terms, will provide, not later than one day before
the due date of any payment referred to in this clause (i), money in an
amount or (C) a combination thereof in an amount sufficient, in the opinion
of a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest and
after payment of all federal, state and local taxes or other charges and
assessments in respect thereof payable by the Trustee, the principal of,
premium, if any, and interest on the outstanding Notes on the Stated
Maturity of such principal or interest; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of such principal, premium,
if any, and interest with respect to the Notes;
(ii) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that (A) the creation of the defeasance trust does not violate
the Investment Company Act of 1940, (B) after the passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the United States Bankruptcy Code, after one year following the deposit),
the trust funds 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 in a case commenced by or against the Company under either
such statute, and either (1) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally) or (2) if a court were to rule under
any such law in any case or proceeding that the trust funds remained
property of the Company, (x) assuming such trust funds remained in the
possession of the Trustee prior to such court ruling to the extent not paid
to the Holders, the Trustee will hold, for the benefit of the Holders, a
valid and
<PAGE>
perfected security interest in such trust funds that is not avoidable in
bankruptcy or otherwise (except for the effect of Section 552(b) of the
United States Bankruptcy Code on interest on the trust funds accruing after
the commencement of a case under such statute) and (y) the Holders will be
entitled to receive adequate protection of their interests in such trust
funds if such trust funds are used in such case or proceeding, (C) 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 and (D) the Trustee,
for the benefit of the Holders, has a valid first-priority security
interest in the trust funds;
(iii) immediately after giving effect to such deposit on a pro forma
basis, no Default or 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 such date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, this Indenture or
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 is permitted by Article Eleven;
(iv) if the Notes are then 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; and
(v) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the
--------------------------
Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01, 8.02
--------------------
and 8.03, the Trustee and the Paying Agent shall promptly pay to the Company
upon request set forth in an Officers' Certificate any excess money held by them
at any time and thereupon shall be relieved from all liability with respect to
such money. The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal, premium, if any, or
interest that remains unclaimed for two years; provided that the Trustee or
Paying Agent before being required to make any payment may cause to be published
at the expense of the Company once in a newspaper of general circulation in The
City of New York and, in the event the Notes
<PAGE>
are listed on the Luxembourg Stock Exchange, in Luxembourg, or mail to each
Holder entitled to such money at such Holder's address (as set forth in the
Security Register) notice that such money remains unclaimed and that after a
date specified therein (which shall be at least 30 days from the date of such
publication or mailing) any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Holders entitled to such
money must look to the Company for payment as general creditors unless an
applicable law designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to
-------------
apply any money or U.S. Government Obligations in accordance with Section 8.01,
8.02 or 8.03, as the case may be, by reason of any legal proceeding or by reason
of any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
until such time as the Trustee or Paying Agent is permitted to apply all such
money or U.S. Government Obligations in accordance with Section 8.01, 8.02 or
8.03, as the case may be; provided that, if the Company has made any payment of
principal of, premium, if any, or interest on any Notes because of the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when authorized by
--------------------------
a resolution of its Board of Directors (as evidenced by a Board Resolution
delivered to the Trustee), and the Trustee may amend or supplement this
Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this Indenture;
provided that such amendments or supplements shall not, in the good faith
opinion of the Board of Directors as evidenced by a Board Resolution,
adversely affect the interests of the Holders in any material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in connection
with the qualification of this Indenture under the TIA;
<PAGE>
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the Board of
Directors as evidenced by a Board Resolution, does not materially and
adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and 6.07
-----------------------
and without prior notice to the Holders, the Company, when authorized by its
Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture and the Notes with the
written consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding, and the Holders of a majority in aggregate principal
amount of the Notes then outstanding by written notice to the Trustee may waive
future compliance by the Company with any provision of this Indenture or the
Notes.
Notwithstanding the provisions of this Section 9.02, without the consent of
each Holder affected, an amendment or waiver, including a waiver pursuant to
Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) change the principal amount of, or premium, if any, or interest
on, any Note;
(iii) change any place or currency of payment of principal of,
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 redemption, on
or after the Redemption Date) on any Note;
(v) reduce the percentage or principal amount of outstanding Notes
the consent of whose Holders is necessary to modify or amend this Indenture
or to waive compliance with certain provisions of or certain Defaults under
this Indenture;
(vi) waive a Default in the payment of principal of, premium, if
any, or interest on, any Note;
(vii) modify any of the provisions of this Section 9.02, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the
Holder of each outstanding Note affected thereby;
<PAGE>
(viii) modify any of the provisions of Article Eleven in a manner
adverse to the Holders; or
(ix) release any Guarantor from its Note Guarantee, except as provided
in this Indenture.
It shall not be necessary for the consent of the Holders under this Section
9.02 to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. The Company will mail
supplemental indentures to Holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
--------------------------------
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives the notice of
revocation before the date the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall bind
every Holder unless it is of the type described in the second paragraph of
Section 9.02. In case of an amendment or waiver of the type described in the
second paragraph of Section 9.02, the amendment or waiver shall bind each Holder
who has consented to it and every subsequent Holder of a Note that evidences the
same indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
--------------------------------
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver such Note to
<PAGE>
the Trustee. At the Company's expense, the Trustee may place an appropriate
notation on the Note about the changed terms and return it to the Holder and the
Trustee may place an appropriate notation on any Note thereafter authenticated.
Alternatively, if the Company or the Trustee so determines, the Company in
exchange for the Note shall issue and the Trustee shall authenticate a new Note
that reflects the changed terms. Failure to make the appropriate notation, or
issue a new Note, shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
-------------------------------
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company. Subject to
the preceding sentence, the Trustee shall sign such amendment, supplement or
waiver if the same does not adversely affect the rights, duties, liabilities or
immunities of the Trustee. The Trustee may, but shall not be obligated to,
execute any such amendment, supplement or waiver that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
-----------------------------------
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
GUARANTEE OF NOTES
SECTION 10.01 Note Guarantee. Subject to the provisions of this Article
--------------
Ten, each of the Guarantors hereby, jointly and severally, fully and
unconditionally Guarantees to each Holder of Notes hereunder and to the Trustee
on behalf of the Holders: (i) the due and punctual payment of the principal of,
premium, if any, on and interest on each Note, when and as the same shall become
due and payable, whether at maturity, by acceleration or otherwise, the due and
punctual payment of interest on the overdue principal of and interest, if any,
on the Notes, to the extent lawful, and the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms of such Note and this Indenture and (ii) in the case
of any extension of time of payment or renewal of any Notes or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, at Stated Maturity, by
acceleration or otherwise, subject, however, in the case of clauses (i) and (ii)
above, to the limitations set forth in the next succeeding paragraph.
Each Guarantor and by its acceptance hereof each Holder hereby confirms
that it is the intention of all such parties that the Guarantee by such
Guarantor pursuant to its Note Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the United States Bankruptcy
<PAGE>
Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar Federal or state law. To effectuate the foregoing intention, the
Holders and such Guarantor hereby irrevocably agree that the obligations of such
Guarantor under its Note Guarantee shall be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Note Guarantee or pursuant to the following paragraph,
result in the obligations of such Guarantor under its Note Guarantee not
constituting such fraudulent transfer or conveyance.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
----- --
distribution is made by any Guarantor (a "Funding Guarantor") under its Note
-----------------
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
--- ----
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Company's
obligations with respect to the Notes or any other Guarantor's obligations with
respect to its Note Guarantee. "Adjusted Net Assets" of such Guarantor at any
date shall mean the lesser of the amount by which (x) the fair value of the
property of such Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date), but
excluding liabilities under the Note Guarantee, of such Guarantor at such date
and (y) the present fair salable value of the assets of such Guarantor at such
date exceeds the amount that will be required to pay the probable liability of
such Guarantor on its debts (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date and after giving effect
to any collection from any Subsidiary of such Guarantor in respect of the
obligations of such Subsidiary under the Note Guarantee of such Guarantor),
excluding debt in respect of its Note Guarantee, as they become absolute and
matured.
Each of the Guarantors hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of merger or bankruptcy of
the Company, any right to require a proceeding first against the Company, the
benefit of discussion, protest or notice with respect to any such Note or the
debt evidenced thereby and all demands whatsoever (except as specified above),
and covenants that this Note Guarantee will not be discharged as to any such
Note except by payment in full of the principal thereof and interest thereon and
as provided in Sections 8.01, 8.02 and 8.03. In the event of any declaration of
acceleration of such obligations as provided in Article Six, such obligations
(whether or not due and payable) shall forthwith become due and payable by the
Guarantors for the purposes of this Article Ten. In addition, without limiting
the foregoing provisions, upon the effectiveness of an acceleration under
Article Six, the Trustee shall promptly make a demand for payment on the Notes
under the Note Guarantee provided for in this Article Ten.
<PAGE>
The obligations of each Guarantor under its Note Guarantee are independent
of the obligations Guaranteed by such Guarantor hereunder, and a separate action
or actions may be brought and prosecuted by the Trustee on behalf of, or by, the
Holders, subject to the terms and conditions set forth in this Indenture,
against a Guarantor to enforce this Guarantee, irrespective of whether any
action is brought against the Company or whether the Company is joined in any
such action or actions.
If the Trustee or the Holder is required by any court or otherwise to
return to the Company or any Guarantor, or any custodian, receiver, liquidator,
trustee, sequestrator or other similar official acting in relation to Company or
such Guarantor, any amount paid to the Trustee or such Holder in respect of a
Note, this Note Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each of the Guarantors further agrees, to
the fullest extent that it may lawfully do so, that, as between it, on the one
hand, and the Holders and the Trustee, on the other hand, the maturity of the
obligations Guaranteed hereby may be accelerated as provided in Article Six
hereof for the purposes of this Note Guarantee, notwithstanding any stay,
injunction or other prohibition extant under any applicable bankruptcy law
preventing such acceleration in respect of the obligations Guaranteed hereby.
Each of the Guarantors hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against the Company or any other Guarantor
that arise from the existence, payment, performance or enforcement of its
obligations under this Note Guarantee and this Indenture, including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
indemnification, any right to participate in any claim or remedy of the Holders
against the Company or any Guarantor or any collateral which any such Holder or
the Trustee on behalf of such Holder hereafter acquires, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Company or a Guarantor, directly or indirectly, in cash or other property or by
set-off or in any other manner, payment or security on account of such claim or
other rights. If any amount shall be paid to a Guarantor in violation of the
preceding sentence and the principal of, premium, if any, and accrued interest
on the Notes shall not have been paid in full, such amount shall be deemed to
have been paid to such Guarantor for the benefit of, and held in trust for the
benefit of, the Holders, and shall forthwith be paid to the Trustee for the
benefit of the Holders to be credited and applied upon the principal of,
premium, if any, and accrued interest on the Notes. Each of the Guarantors
acknowledges that it will receive direct and indirect benefits from the issuance
of the Notes pursuant to this Indenture and that the waivers set forth in this
Section 10.01 are knowingly made in contemplation of such benefits.
The Note Guarantee set forth in this Section 10.01 shall not be valid or
become obligatory for any purpose with respect to a Note until the certificate
of authentication on such Note shall have been signed by or on behalf of the
Trustee.
<PAGE>
SECTION 10.02 Obligations Unconditional. Nothing contained in this
-------------------------
Article Ten or elsewhere in this Indenture or in the Notes is intended to or
shall impair, as among any Guarantor and the holders of the Notes, the
obligation of such Guarantor, which is absolute and unconditional, upon failure
by the Company, to pay to the holders of the Notes the principal of, premium, if
any, and interest on the Notes as and when the same shall become due and payable
in accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of such Guarantor, nor shall anything herein
or therein prevent any Holder or the Trustee on their behalf from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture.
Without limiting the foregoing, nothing contained in this Article Ten will
restrict the right of the Trustee or the Holders to take any action to declare
the Note Guarantee to be due and payable prior to the Stated Maturity of any
Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder.
SECTION 10.03 Release of Note Guarantees. The Note Guarantee issued by
--------------------------
any 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 Guarantor or Restricted Subsidiary or
(ii) the designation of such Guarantor or Restricted Subsidiary as an
Unrestricted Subsidiary, in each case in compliance with the terms of this
Indenture.
SECTION 10.04 Notice to Trustee. A Guarantor shall give prompt written
-----------------
notice to the Trustee of any fact known to such Guarantor which would prohibit
the making of any payment to or by the Trustee in respect of the Note Guarantee
pursuant to the provisions of this Article Thirteen.
SECTION 10.05 This Article Not to Prevent Events of Default. The failure
---------------------------------------------
to make a payment on account of principal of, premium, if any, or interest on
the Notes by reason of any provision of this Article Ten will not be construed
as preventing the occurrence of an Event of Default.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness of
---------------------------
the Registration Statement, this Indenture shall incorporate and be governed by
the provisions of the TIA that are required to be part of and to govern
indentures qualified under the TIA. After the effectiveness of the Registration
Statement, this Indenture shall be subject to the provisions of the TIA that are
required to be a part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
<PAGE>
SECTION 11.02. Notices. Any notice, request or communication shall be
-------
sufficiently given if in writing and delivered in person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
if to the Company:
-----------------
Marvel Enterprises, Inc.
387 Park Avenue South, New York, NY 10016
Telecopier No.: (212) 576-8511
Attention: Corporate Secretary
if to the Trustee:
-----------------
IBJ Whitehall Bank & Trust Company
One State Street, New York, NY 10004
Telecopier No.: (212) 858-2952
Attention: Corporate Finance Trust Services
The Company or the Trustee by notice to the other may designate additional
or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to it at its
address as it appears on the Security Register by first-class mail and shall be
sufficiently given to him if so mailed within the time prescribed. Any notice
or communication shall also be so mailed to any Person described in TIA Section
313(c), to the extent required by the TIA. Copies of any such communication or
notice to a Holder shall also be mailed to the Trustee and each Agent at the
same time.
Failure to mail a notice or communication to a Holder as provided herein or
any defect in any such notice or communication shall not affect its sufficiency
with respect to other Holders. Except for a notice to the Trustee, which is
deemed given only when received, and except as otherwise provided in this
Indenture, if a notice or communication is mailed in the manner provided in this
Section 11.02, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
<PAGE>
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
Holders may communicate pursuant to TIA Section 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Company,
the Trustee, the Registrar and anyone else shall have the protection of TIA
Section 312(c).
SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon
--------------------------------------------------
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of such
Counsel, all such conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion. Each
---------------------------------------------
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statement or opinion contained in such
certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(iv) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided,
however, that, with respect to matters of fact, an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee
-------------------------------------------
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.
<PAGE>
SECTION 11.06. Payment Date Other Than a Business Day. If an Interest
--------------------------------------
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity
of any Note shall not be a Business Day, then payment of principal of, premium,
if any, or interest on such Note, as the case may be, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Payment Date or Redemption
Date, or at the Stated Maturity or date of maturity of such Note; provided that
no interest shall accrue for the period from and after such Interest Payment
Date, Payment Date, Redemption Date, Stated Maturity or date of maturity, as the
case may be.
SECTION 11.07. Governing Law. This Indenture and the Notes shall be
-------------
governed by the laws of the State of New York. The Trustee, the Company and the
Holders agree to submit to the jurisdiction of the courts of the State of New
York in any action or proceeding arising out of or relating to this Indenture or
the Notes.
SECTION 11.08. No Adverse Interpretation of Other Agreements. This
---------------------------------------------
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others. 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 contained in this
Indenture or in any of the Notes, or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator or against 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, either directly or through the Company or any successor Person, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly understood that all
such liability is hereby expressly waived and released as a condition of, and as
a consideration for, the execution of this Indenture and the issue of the Notes.
SECTION 11.10. Successors. All agreements of the Company in this
----------
Indenture and the Notes shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successor.
SECTION 11.11. Duplicate Originals. The parties may sign any number of
-------------------
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
<PAGE>
SECTION 11.12. Separability. In case any provision in this Indenture or
------------
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents,
--------------------------------
Cross-Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
MARVEL ENTERPRISES, INC
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Executive Vice President,
Business Affairs and Secretary
MEI HOLDING COMPANY F CORP.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MEI HOLDING COMPANY S CORP.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MEI HOLDING COMPANY FHF CORP.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MRV, INC.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
<PAGE>
88
MALIBU COMICS ENTERTAINMENT, INC.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MARVEL CHARACTERS, INC.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MARVEL ENTERTAINMENT GROUP, INC.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MARVEL RESTAURANT VENTURE CORP.
By: /s/ William H. Hardie, III
----------------------------------------
Name: William H. Hardie, III
Title: President and Secretary
IBJ WHITEHALL BANK & TRUST COMPANY
By: /s/ Stephen J. Giurlando
----------------------------------------
Name: Stephen J. Giurlando
Title: Vice President
<PAGE>
EXHIBIT A
---------
[APPLICABLE LEGENDS]
[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, 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 of 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.
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.
<PAGE>
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 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.
<PAGE>
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:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2004...................... 106.000%
2005...................... 104.000%
2006...................... 102.000%
2007 and thereafter....... 100.000%
</TABLE>
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.
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
<PAGE>
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 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
<PAGE>
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.
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;
<PAGE>
(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 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.
<PAGE>
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.
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).
<PAGE>
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.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES,
UNLEGENDED OFFSHORE GLOBAL NOTES AND
UNLEGENDED PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
---------
[ ] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933 provided by Rule 144A
thereunder.
or
--
[ ] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
<PAGE>
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:__________________ _____________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face of
the within-mentioned instrument in every particular,
without alteration or any change whatsoever.
Signature must be guaranteed by a participant in a recognized signature
guaranty medallion program or other signature guarantor acceptable to the
Trustee.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note for
its own account or an account with respect to which it exercises sole investment
discretion and that it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933 and is aware
that the sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:_________________ ________________________________________________
NOTICE: To be executed by an executive officer
<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.
<PAGE>
EXHIBIT B
---------
Form of Certificate
-------------------
_________, ___
IBJ Whitehall Bank & Trust Company
One State Street, New York, New York 10004
Attention: Corporate Trust Department
Re: Marvel Enterprises, Inc. (the "Company")
-------
12% Senior Notes due 2009 (the "Notes")
---------------------------------------
Dear Sirs:
This letter relates to U.S. $_______________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
-------------
restrictions upon transfer of such Legended Note. Pursuant to Section 2.02 of
the Indenture dated as of February 25, 1999 (the "Indenture") relating to the
---------
Notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:___________________________________________
Authorized Signature
<PAGE>
EXHIBIT C
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
_________, ___
IBJ Whitehall Bank & Trust Company
One State Street, New York, New York 10004
Attention: Corporate Trust Department
Re: Marvel Enterprises, Inc. (the "Company")
-------
12% Senior Notes due 2009 (the "Notes")
---------------------------------------
Dear Sirs:
In connection with our proposed purchase of $__________________ aggregate
principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in the Indenture dated as of
February 25, 1999 (the "Indenture") relating to the Notes and the undersigned
---------
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with such restrictions and conditions and the Securities
Act of 1933, amended (the "Securities Act").
--------------
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Notes within the time period referred to in Rule
144(k) of the Securities Act, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter and, if such
transfer is in respect of an aggregate principal amount of less than $100,000,
an opinion of counsel acceptable to the Company that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
exemption from registration provided by Rule 144 under the Securities Act (if
available) or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing any of
the Notes from us a notice advising such purchaser that resales of the Notes are
restricted as stated herein.
<PAGE>
3. We understand that, on any proposed resale of any Notes, we will be
required to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Notes purchased by us will bear a legend to the foregoing
effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes purchased by us for our own account or for
one or more accounts (each of which is an institutional "accredited investor")
-------------------
as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:________________________________________
Authorized Signature
<PAGE>
EXHIBIT D
---------
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
--------------------------------------------------
_________, ___
IBJ Whitehall Bank & Trust Company
One State Street, New York, New York 10004
Attention: Corporate Trust Department
Re: Marvel Enterprises, Inc. (the "Company")
-------
12% Senior Notes due 2009 (the "Notes")
---------------------------------------
Dear Sirs:
In connection with our proposed sale of U.S.$__________________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of 1933
and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United States;
(2) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation
S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:__________________________________________
Authorized Signature
<PAGE>
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of December
---------
8, 1998, is entered into by and among MARVEL ENTERPRISES, INC., a Delaware
corporation (the "Company"), MARVEL ENTERTAINMENT GROUP, INC., a Delaware
-------
corporation ("Marvel Entertainment") and the undersigned stockholders (each, a
---------------------
"Stockholder," and collectively, the "Stockholders").
- - ------------ ------------
RECITALS:
--------
WHEREAS, the Isaac Perlmutter ("Perlmutter") and Avi Arad ("Arad")
---------- ----
have entered into a Registration Rights Agreement dated as of March 2, 1995 (the
"1995 Registration Rights Agreement") with the Company;
----------------------------------
WHEREAS, the Company has entered into a Registration Rights Agreement
with certain stockholders of the Company as of October 1, 1998 (the "October
-------
1998 Registration Rights Agreement");
- - ----------------------------------
WHEREAS, Perlmutter, Arad, the Stockholders (who are Perlmutter, Arad
and various affiliates of Perlmutter) and the Company desire to replace the 1995
Registration Rights Agreement with this Agreement, whose terms are substantially
identical to the October 1998 Registration Rights Agreement;
WHEREAS, Marvel Entertainment, a party to the 1995 Registration Rights
Agreement, is now a wholly owned subsidiary of the Company and, along with the
Company, wishes to terminate the 1995 Registration Rights Agreement with respect
to Marvel Entertainment and the Company;
NOW, THEREFORE, in consideration of these premises and the mutual
promises herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. TERMINATION OF 1995 REGISTRATION RIGHTS AGREEMENT; DEFINITIONS
--------------------------------------------------------------
(a) Termination of 1995 Registration Rights Agreement. Upon the
-------------------------------------------------
effectiveness of this Agreement, the 1995 Registration Rights Agreement shall
terminate.
<PAGE>
(b) Definitions.
-----------
Business Day: Any Monday, Tuesday, Wednesday, Thursday or Friday that is
------------
not a day on which banking institutions in the City of New York are authorized
by law, regulation or executive order to close.
Common Stock: The common stock, par value $0.01 per share, of the Company
------------
or any securities issued in exchange therefor in any recapitalization,
reclassification, merger, consolidation or similar transaction.
Debentures: The 8% Convertible Subordinated Voting Debentures of the
----------
Company.
Effective Date: October 1, 1998.
--------------
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
------------
time, or any successor statute, and the rules and regulations of the SEC
thereunder, all as in effect at the time.
Holder: Each of the Stockholders and any other Person that becomes an
------
owner of Registrable Securities; provided, however, that no Person shall become
-------- -------
a Holder unless such Person has executed and delivered to the Company, an
agreement, in the form of Annex A hereto, to be bound by the provisions of this
Agreement.
Person: An individual, partnership, corporation, limited liability
------
company, joint venture trust or unincorporated organization, a government or
agency or political subdivision thereof or any other entity.
Preferred Stock: The 8% cumulative convertible exchangeable preferred
---------------
stock, par value $0.01 per share, of the Company.
Prospectus: The prospectus included in any Registration Statement, as
----------
amended or supplemented by a prospectus supplement with respect to the terms of
the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
Registration Expenses: All expenses incident to the Company's performance
---------------------
of or compliance with this Agreement, including without limitation all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws (including reasonable fees and disbursements of counsel in
connection with blue sky qualifications or registrations (or the obtaining of
exemptions therefrom) of the Registrable Securities), printing expenses
(including expenses of printing Prospectuses), messenger and delivery expenses,
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees
2
<PAGE>
performing legal or accounting duties), fees and disbursements of its counsel
and its independent certified public accountants (including the expenses of any
special audit or "comfort" letters required by or incident to such performance
or compliance), securities acts liability insurance (if the Company elects to
obtain such insurance), fees and expenses of any special experts retained by the
Company in connection with any registration hereunder, and fees and expenses of
other Persons retained by the Company; provided, however, that Registration
-------- -------
Expenses shall not include any underwriting discounts, commissions or fees
attributable to the sale of the Registrable Securities.
Registrable Securities: (i) All shares of Preferred Stock held by any of
----------------------
the Stockholders as of the date hereof (the "Preferred Shares"); (ii) any shares
----------------
of Common Stock into which the Preferred Shares may be converted from time to
time, (iii) any Debentures issued in exchange for the Preferred Shares, (iv) if
the Debentures are issued, any shares of Common Stock issued or issuable upon
conversion of the Debentures, (v) all shares of Common Stock held by any of the
Stockholders as of the date hereof and (vi) any other securities issued or
issuable as a result of or in connection with any stock dividend, stock split or
reverse stock split, combination, recapitalization, reclassification, merger or
consolidation, exchange or distribution in respect of the securities referred to
in clauses (i) through (v) above; provided, however, that any Registrable
Security shall cease to be such if (A) such Registrable Security shall have been
transferred pursuant to an effective Registration Statement or in compliance
with Rule 144 or (B) such Registrable Securities may be sold pursuant to section
(k) of Rule 144.
Registration Statement: Any registration statement of the Company,
----------------------
including, without limitation, the Shelf Registration Statement, filed with the
SEC which provides for the registration for sale or other transfer of the
Registrable Securities, including the Prospectus included therein, all
amendments and any supplements to such Registration Statement, including post-
effective amendments, all exhibits and all material incorporated by reference in
such Registration Statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may
--------
be amended from time to time, or any similar successor rule thereto that may be
promulgated by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may
--------
be amended from time to time, or any similar successor rule thereto that may be
promulgated by the SEC.
SEC: The United States Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended from time to time,
--------------
or any successor statute, and the rules and regulation of the SEC thereunder,
all as in effect from time to time.
3
<PAGE>
Underwritten Offering: A registered offering in which securities are sold
---------------------
to one or more underwriters on a firm commitment basis for reoffering to the
public.
2. REGISTRATION UNDER THE SECURITIES ACT
-------------------------------------
(a) Filing and Effectiveness. The Company shall use its reasonable
------------------------
best efforts to cause a shelf registration statement under the Securities Act
registering the resale of the Registrable Securities by the Holders (the "Shelf
-----
Registration Statement") to be declared effective as soon as practicable after
- - ----------------------
the filing thereof, and thereafter to keep it continually effective until such
time as there shall cease to be outstanding any Registrable Securities.
(b) Subsequent Holders. If any Person becomes a Holder of
------------------
Registrable Securities that were included in the Shelf Registration Statement
subsequent to the time that the Shelf Registration Statement became effective,
the Company shall add such Holder to the Shelf Registration Statement, on a
timely basis, through a post-effective amendment or a supplement to the
Prospectus, as shall be necessary in accordance with the rules of the SEC under
the Securities Act to include such Holder as a selling securityholder in a
distribution under the Shelf Registration Statement.
(c) Methods of Distribution. The Registrable Securities may be sold
-----------------------
or distributed under the Shelf Registration Statement directly by the Holders as
principal or through one or more brokers, dealers or agents from time to time in
one or more transactions, including, without limitation, (i) on any securities
exchange (or quotation system operated by a national securities association) on
which the Registrable Securities are then listed, (ii) in private transactions,
(iii) in block trades, or (iv) though the writing of options (whether such
options are listed on an exchange or otherwise) on, or settlement of short sales
of, the Registrable Securities in compliance with applicable law. The Holders
may not sell or distribute the Registrable Securities under the Shelf
Registration Statement in an Underwritten Offering except as provided in Section
3 hereof.
Nothing in this Agreement shall in any way restrict any Holder from
selling or otherwise transferring the risk or benefit of ownership of securities
of the Company in any manner not provided in this Agreement in accordance with
the Securities Act and other applicable law.
3. PIGGYBACK REGISTRATION.
----------------------
(a) Piggyback Registration. If the Company at any time proposes to
----------------------
effect an Underwritten Offering of any class of its equity securities for its
own account or for the account of a holder of securities of the Company pursuant
to registration rights granted by the Company (a "Requesting Shareholder"),
----------------------
whether under a previously effective shelf registration statement or a
registration statement filed for the purpose of such Underwritten Offering (a
4
<PAGE>
"Piggyback Registration"), then the Company shall in each case give written
- - -----------------------
notice of such proposed offering to the Holders at least ten (10) Business Days
before the proposed date of filing of such registration statement (or, in the
case of a previously effective shelf registration statement, the filing of any
amendment or supplement to such shelf registration statement to permit such
Underwritten Offering), and such notice shall offer to all Holders the
opportunity to have any or all of the Registrable Securities then held by the
Holders included in such Underwritten Offering. Each Holder desiring to have
its Registrable Securities offered under this Section shall so advise the
Company in writing within five (5) Business Days after the date of receipt of
the Company's aforesaid notice (which request shall set forth the amount of
Registrable Securities proposed to be offered), and the Company shall cause to
be included in such Underwritten Offering all such Registrable Securities so
requested to be included therein, provided that the Holders thereof execute and
deliver the underwriting agreement and other customary documents related to such
offering including, if requested by the managing underwriter or underwriters,
selling stockholder questionnaires, powers of attorney and custody agreements.
(b) Cutback. (i) Priority on Primary Registrations. If a Piggyback
------- ---------------------------------
Registration is an Underwritten Offering by the Company on a primary basis (a
"Primary Registration"), and the managing underwriters advise the Company in
- - ---------------------
writing that in their good faith opinion the amount of securities requested to
be included in such registration is sufficiently large as to be likely to
materially adversely affect the success of such offering, the Company will
include in such registration, to the extent such managing underwriters advise
the Company that such securities can be included in the Offering without being
likely to materially adversely affect the success of the Offering (i) first, the
securities the Company proposes to sell, and (ii) second, the securities
requested to be sold by any of the Holders and other holders of securities of
the Company exercising similar piggy-back registration rights with respect to
that Offering, pro rata, based on the number of securities requested to be sold
by the Holders and the holders.
(ii) Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
is an Underwritten Offering other than a Primary Registration, and the managing
underwriters advise the Company in writing that in their good faith opinion the
amount of securities requested to be included in such registration is
sufficiently large as to be likely to materially adversely affect the success of
such registration, the Company will include in such registration, to the extent
such managing underwriters advise the Company that such securities can be
included in the Offering without being likely to materially adversely affect the
success of the Offering (i) first, the securities requested to be included
therein by a Requesting Shareholder exercising demand registration rights, (ii)
second, the securities requested to be included therein by the Company and (iii)
third, as requested by any other Holders and other holders of securities of the
Company exercising similar piggy-back registration rights with respect to that
Offering, pro rata, based on the number of securities requested to be sold by
those Holders or holders.
5
<PAGE>
4. REGISTRATION PROCEDURES.
-----------------------
(a) General. In connection with the Company's registration
-------
obligations pursuant to this Agreement, the Company shall:
(i) prepare and file with the SEC the Shelf Registration
Statement and such amendments and post-effective amendments thereto as may
be necessary to keep the Shelf Registration Statement continuously
effective for the time period set forth in Section 2, including as required
in accordance with Item 512(a) of Regulation S-K under the Securities Act;
provided that as soon as practicable, but in no event later than three (3)
--------
Business Days before the filing of any Registration Statement and any
amendment thereto, any related Prospectus or any amendment or supplement
thereto (other than any amendment or supplement made solely as result of
incorporation by reference of documents filed with the SEC subsequent to
the filing of such Registration Statement), the Company shall furnish to
the Holders of the Registrable Securities covered by such Registration
Statement, copies of all such documents proposed to be filed, which
documents shall be subject to the review of such Holders; not file any
Registration Statement or any amendment thereto or any Prospectus or any
supplement thereto (other than any amendment or supplement made solely as a
result of incorporation by reference of documents filed with the SEC
subsequent to the filing of such Registration Statement) to which the
Holders of a majority of the Registrable Securities shall have reasonably
objected in writing within (2) Business Days after receipt of such
documents to the effect that such Registration Statement or amendment
thereto or Prospectus or supplement thereto does not comply in all material
respects with the requirements of the Securities Act; and comply with the
provisions of the Securities Act applicable to the Company with respect to
the disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus in accordance with
this Agreement;
(ii) notify the selling Holders of Registrable Securities
promptly (1) when a Registration Statement, Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to
any Registration Statement or post-effective amendment, when it has become
effective, (2) of any request by the SEC for amendments or supplements to
any Registration Statement or Prospectus or for additional information, (3)
of the issuance by the SEC of any comments with respect to any filing, (4)
of any stop order suspending the effectiveness of any Registration
Statement or the initiation of any proceedings for that purpose, (5) of any
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any
statement of a material fact made in any Registration Statement, Prospectus
or any document incorporated therein by reference untrue or which requires
6
<PAGE>
the making of any changes in any Registration Statement, Prospectus or any
document incorporated therein by reference in order to make the statements
therein (in the case of any Prospectus, in the light of the circumstances
under which they were made) not misleading; and use reasonable best efforts
to obtain as promptly as practicable the withdrawal of any order or other
action suspending the effectiveness of any Registration Statement or
suspending the qualification or registration (or exemption therefrom) of
the Registrable Securities for sale in any jurisdiction;
(iii) promptly after the filing of any document which is to be
incorporated by reference into a Registration Statement or Prospectus,
provide without charge copies of such document to the Holders of the
Registrable Securities covered thereby;
(iv) furnish to the selling Holders of Registrable Securities,
without charge, at least one manually signed or "edgarized" copy, and as
many conformed copies as may reasonably be requested, of the then effective
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(v) deliver to the selling Holders, without charge, as many
copies of the then effective Prospectus (including each prospectus subject
to completion) and any amendments or supplements thereto as such Persons
may reasonably request;
(vi) use reasonable best efforts to register or qualify or
cooperate with the selling Holders and their respective counsel in
connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any selling Holder reasonably requests in writing and do
any and all other acts or things reasonably necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the then effective Registration Statement; provided, however,
-------- -------
that the Company will not be required to (1) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (vi) or (2) subject itself to general taxation in any such
jurisdiction;
(vii) cooperate with the selling Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends; and enable
such Registrable Securities to be in such denominations and registered in
such names as the Holders may request at least two (2) Business Days prior
to any sale of Registrable Securities to the underwriters, if any;
7
<PAGE>
(viii) upon the occurrence of any event contemplated by clause
(6) of paragraph (ii) above, promptly prepare a supplement or post-
effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities, the Prospectus will not contain an untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading;
(ix) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange (or
quotation system operated by a national securities association) on which
identical securities issued by the Company are then listed, and enter into
customary agreements to effect that listing, including, if necessary, a
listing application in customary form, and provide a transfer agent for
such Registrable Securities;
(x) if the Registrable Securities are to be sold in an
Underwritten Offering pursuant to Section 3 or in a block trade or other
private placement: (1) obtain an opinion of counsel covering matters that
are no more extensive in scope than would be customarily covered in
opinions obtained in such types of transactions by issuers with similar
market capitalization and reporting and financial histories; (2) obtain a
"cold comfort" letter from the independent public accountants of the
Company and covering matters that are no more extensive in scope than would
be customarily covered in "cold comfort" letters and updates obtained in
secondary Underwritten Offerings by issuers with similar market
capitalization and reporting and financial histories, provided, however,
-------- -------
that the letter described in this clause (2) shall only be required in
connection with a block trade or other private placement to the extent such
letters are being issued in respect of such types of transactions under
then prevailing accounting practices and to the extent the Company's
independent public accountants do not have a policy against issuing such
letters in connection with such offerings; and (3) deliver a certificate of
a senior executive officer of the Company to cover matters no more
extensive in scope than those matters customarily covered in officer's
certificates delivered in connection with Underwritten Offerings by issuers
with similar market capitalization and reporting and financial histories;
(xi) provide a CUSIP number for the Registrable Securities no
later than the effective date of a Registration Statement applicable
thereto;
(xii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered and make
generally available to its securities holders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act, no later
than 60 days after the end of any 12-month period (or 90 days, if such
8
<PAGE>
period is a fiscal year) commencing at the end of any fiscal quarter in
which the Registrable Securities are sold in an Underwritten Offering,
block trade or other private placement, which earnings statements shall
cover such 12-month periods;
(xiii) cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc.; and
(xiv) make available for inspection by representatives of the
Holders of the Registrable Securities, and any attorneys or accountants
retained by the Holders, all financial and other records, pertinent
corporate documents and properties of the Company and cause the Company's
officers, directors and employees to supply all information reasonably
requested by, and to reasonably cooperate with, any such representative,
attorney or accountant in connection with such registration, and otherwise
to cooperate fully in connection with any due diligence investigation,
including making reasonably available its officers during ordinary business
hours, and permitting discussions with the independent public accountants
who have certified the Company's most recent annual financial statements,
in each case to the extent necessary to enable any Holder to conduct a
"reasonable investigation" for purposes of Section 11(a) of the Securities
Act; provided, however, that such representatives, attorneys or accountants
-------- -------
enter into a confidentiality agreement, in customary form and substance
reasonably satisfactory to the Company, prior to the release or disclosure
to them of any such information, records or documents.
(b) Holder Information. The Company may require each selling Holder
------------------
to furnish to the Company such information regarding such Holder and the
distribution of Registrable Securities to be sold by such Holder as the Company
may from time to time reasonably request in writing.
(c) Occurrence of Certain Events. Each Holder of Registrable
----------------------------
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Subsection (a)(ii)(4), (5) or
(6) above, such Holder will forthwith refrain from disposing or discontinue
disposition of Registrable Securities pursuant to the then current Prospectus
(but, in the case of an event described in Subsection (a)(ii)(5), only in the
affected jurisdiction(s)) until such Holder is advised in writing by the Company
that the use of the Prospectus may be resumed. The Company shall use its best
efforts to limit the duration of any discontinuance with respect to the
disposition of Registrable Securities pursuant to this paragraph.
(d) Additional Procedures. If the Holders become entitled, pursuant
---------------------
to an event described in clause (viii) of the definition of Registrable
Securities, to receive any securities in respect of Registrable Securities that
were already included in the Shelf Registration Statement subsequent to the date
the Shelf Registration Statement is declared effective, and the Company is
unable under the securities laws to add such securities to the
9
<PAGE>
Shelf Registration Statement, the Company, as promptly as reasonably
practicable, shall file, in accordance with the procedures more particularly set
forth in this Section, an additional Shelf Registration Statement with respect
to any such Registrable Securities. The Company shall use its reasonable best
efforts to have any such additional Registration Statement declared effective as
promptly as reasonably practicable after such filing and to keep such additional
Shelf Registration Statement continuously effective during the period specified
in Section 2.
5. HOLDBACK AGREEMENTS.
-------------------
(a) Hold-Back Election. Subject to subsection (c) and the final
------------------
sentence of this Subsection (a), in the case of any Underwritten Offering by the
Company, whether for its own account or for the account of a holder of
securities of the Company pursuant to registration rights granted by the
Company, each Holder agrees, if and to the extent requested in writing by the
managing underwriter or underwriters administering such offering as promptly as
reasonably practicable prior to the commencement of the 10-day period referred
to below (a "Hold-Back Election"), not to effect any public sale or distribution
------------------
of securities of the Company except as part of such Underwritten Offering,
during the period beginning ten (10) days prior to the closing date of such
underwritten offering and during the period ending on the earlier of (i) sixty
(60) days after such closing date and (ii) the date such sale or distribution is
permitted by such managing underwriter or underwriters, provided that, if and to
--------
the extent it is reasonable to do so, the Company will request of the managing
underwriter or underwriters to permit such sale or distribution prior to the
date permitted under clause (i) above.
(b) Material Development Election. Subject to Subsection (c), the
-----------------------------
Company shall be entitled, for a period of time not to exceed forty-five (45)
consecutive days, to require that the Holders refrain from effecting any
distribution of their Registrable Securities pursuant to the Shelf Registration
Statement if the chief executive officer of the Company determines in his
reasonable good faith judgment that, in accordance with his understanding of the
disclosure requirements of applicable securities law, such distribution would
require disclosure of any financing (other than an underwritten secondary
offering of any securities of the Company), acquisition, disposition, corporate
reorganization or other transaction or development involving the Company or any
subsidiary of the Company that is or would be material to the Company and that,
in the reasonable good faith business judgment of such chief executive officer,
such disclosure would not at that time be in the best interests of the Company
(a "Material Development Election"). The Company shall, as promptly as
-----------------------------
practicable, give the Holders written notice of any such Material Development
Election. If the Holders have been required to refrain from disposing of their
Registrable Securities as a result of a Material Development Election, the
Company shall, as promptly as practicable following the determination that the
Holders may recommence such sales, notify such Holders in writing of such
determination (but in any event no later than the end of such 45-day period).
(c) Limitation. In no event shall the restrictions under Subsection
----------
(a) or Subsection (b), pursuant to one or more Hold-Back Elections or Material
Development
10
<PAGE>
Elections, remain in effect for more than ninety (90) days in the aggregate in
any calendar year.
6. REGISTRATION EXPENSES
---------------------
The Company shall pay all Registration Expenses in connection with the
registration, offering and sale of the Registrable Securities pursuant to this
Agreement. The Holders shall pay any underwriting discounts, commissions or
fees, fees and expenses of their counsel and all other expenses incurred by them
which are attributable to the offering and sale of any Registrable Securities in
accordance with this Agreement.
7. RULE 144
--------
The Company shall use its reasonable best efforts to make publicly
available, pursuant to Rule 144, such information as is necessary to enable the
Holders to make sales of Registrable Securities pursuant to that Rule. The
Company shall use its reasonable best efforts to file timely with the SEC all
documents and reports required of the Company under the Exchange Act. The
Company shall furnish to any Holder, upon request, a written statement executed
on behalf of the Company as to compliance with the current public information
requirements of Rule 144.
8. INDEMNIFICATION.
---------------
(a) Indemnification by The Company. The Company agrees to indemnify, to
------------------------------
the extent permitted by law (or if indemnification is held by a court of
competent jurisdiction to be unavailable, to contribute to the amount paid or
payable by), each Holder and (as applicable) its officers and directors and each
person or entity who controls such Holder (within the meaning of the Securities
Act) and each person or entity which participates as or may be deemed to be an
underwriter in the offering or sale of such securities against all losses,
claims, damages, liabilities and expenses to which the Holders may be subject
under the Securities Act or any other statute or common law, insofar as such
losses, claims, damages, liabilities and expenses arise out of or are based upon
(i) any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or (ii) any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (in the case of a prospectus, always in light of the
circumstances under which the statements are made) or (iii) any violation by the
Company of the Securities Act or any state securities law, "blue sky" law, or
any other law, applicable to the Company in connection with such registration,
qualification, or compliance; provided, however, that the Company will not be
-------- -------
liable to any holder in such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon (a) any untrue
statement or omission made in such Registration Statement or amendment or
supplement thereto in reliance upon and in conformity with the written
information furnished to the Company by such Holder expressly for use in the
11
<PAGE>
registration statement or (b) any untrue statement or alleged untrue statement
of a material fact contained in, or any omission or alleged omission of a
material fact from, a Registration Statement if (x) such Registration Statement
had been later amended or supplemented in a manner that would correct the untrue
statement or alleged untrue statement, omission or alleged omission, which is
the basis of the loss, liability, claim, damage or expense for which
indemnification is sought, (y) a copy of such amendment or supplement had been
timely provided to the Holder and had not been sent to or given to a purchaser
at or prior to confirmation of sale to such purchaser and the Holder shall have
been under an obligation to deliver such amendment or supplement, and (z) there
would have been no such liability but for such failure to deliver such
prospectus by the Holder. The Company will also indemnify underwriters
participating in the distribution, their officers, directors, employees,
partners and agents, and each Person who controls such underwriters (within the
meaning of the Securities Act), to the same extent as provided above with
respect to the indemnification of the Holders of Registrable Securities, if so
requested.
(b) Indemnification by the Holders. Each Holder agrees to indemnify, to
------------------------------
the extent permitted by law (or if indemnification is held by a court of
competent jurisdiction to be unavailable, to contribute to the amount paid or
payable by), the Company, its directors and officers and each person or entity
who controls the Company (within the meaning of the Securities Act) and each
person or entity which participates as or may be deemed to be an underwriter in
the offering or sale of such securities against any losses, claims, damages,
liabilities and expenses resulting from (i) any untrue or alleged untrue
statement of material fact contained in the Registration Statement, prospectus
or preliminary prospectus or any amendment thereof or supplement thereto or (ii)
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, (in the case
of a prospectus, always in light of the circumstances under which the statements
are made) or (iii) any violation by the Company of the Securities Act or any
state securities law, "blue sky" law, or any other law, applicable to the
Company in connection with such registration, qualification, or compliance, but
only to the extent that such loss, claim, damage, liability or expense arises
out of or is based upon any untrue statement or omission made in such
registration statement or amendment or supplement thereto or any document in
reliance upon and in conformity with the written information furnished to the
Company by such Holder expressly for use in the registration statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
--------------------------------------
indemnification hereunder will (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification;
provided, however, that failure to give such notice will not prejudice such
- - -------- -------
person's or entity's right to indemnification from the indemnifying party,
except as to any losses suffered by such Person which are attributable to such
Person's failure to promptly give such notice to such indemnifying party and
(ii) (A) have the right to assume the defense of any claim with respect to which
it seeks indemnification and with respect to which it has given the notice
required by clause (i) of this Subsection if (x) the indemnifying party shall
have failed to assume the defense of such claim and employ counsel
12
<PAGE>
reasonably satisfactory to the indemnified party in a timely manner or (y) in
the reasonable judgment of such Person, based upon advise of its counsel, a
conflict of interest may exist between such person and the indemnifying party
with respect to such claims (in which case, if such Person notifies the
indemnifying party in writing that such Person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such Person) or (B)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. The indemnifying party will
not be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim (as well as one local counsel in each relevant jurisdiction), unless
in the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim. The indemnifying party will not consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the
indemnified party of a release from all liability in respect of such claim or
litigation.
(d) Contribution. If for any reason the indemnification provided for
------------
in this Section is unavailable to an indemnified party or insufficient to hold
it harmless as contemplated by this Section, then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a result of
such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and the indemnified party
in connection with the statements or omissions that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations, provided, however, that no indemnifying Holder shall be required
-------- -------
to contribute an amount greater than the dollar amount of the net proceeds
received by such indemnifying Holder with respect to the sale of the Registrable
Securities giving rise to such indemnification obligation. The relative fault
of any indemnifying or indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying or indemnified party or its
affiliates or representatives, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Subsection were determined by (i) pro rata
--- ----
allocation (even if all Holders or any agents for the Holders or any
underwriters of the Registrable Securities, or all of them, were treated as one
entity for such purpose), or (ii) by any other method that does not take into
account the equitable consideration referred to in this Subsection. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. No Person guilty of
13
<PAGE>
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentations.
(e) The indemnification and contribution provided for under this Agreement
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person or entity of such indemnified party and will survive the transfer of
securities and the termination of this Agreement.
9. MISCELLANEOUS.
-------------
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered into and will
--------------------------
not on or after the date of this Agreement enter into any agreement which is
inconsistent with the rights granted in this Agreement to the Holders or which
otherwise conflicts with the provisions hereof.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, without the consent in writing of the Company and all affected Holders.
(c) NOTICES. All notices, requests, demands, deliveries and other
-------
communications (collectively, "Notices") that are required or may be given under
this Agreement shall be in writing. All Notices shall be deemed to have been
duly given or made: if by hand, immediately upon delivery; if by telecopier or
similar device, immediately upon sending, provided notice is sent on a business
day during the hours of 9:00 a.m. and 6:00 p.m. at the location of the party
receiving the Notice, but if not, then immediately upon the beginning of the
first business day after being sent; if by Federal Express, United States Postal
Service, Express Mail or any other reputable overnight delivery service, on the
scheduled delivery date thereof; and if mailed by certified mail, return receipt
requested, ten Business Days after mailing. Notwithstanding the foregoing, with
respect to any Notice given or made by telecopier or similar device, such Notice
shall not be effective unless and until (i) the telecopier or similar device
being used prints a written confirmation of the successful completion of such
communication by the party sending the Notice, and (ii) a copy of such Notice is
deposited in first class mail to the appropriate address for the party to whom
the Notice is sent. In addition, notwithstanding the foregoing, a Notice of a
change of address by a party hereto shall not be effective until received by the
party to whom such Notice of a change of address is sent. All notices are to be
given or made to the parties at the following addresses (or to such other
address as either party may designate by Notice in accordance with the
provisions of this Section):
i. if to any of the Holders, to its address set forth on Schedule 1
----------
hereto;
14
<PAGE>
ii. If to the Company, to
Marvel Enterprises, Inc.
685 Third Avenue
New York, New York 10017
Attention: Secretary
Facsimile No.: 212-682-5272
Confirm: 212-558-5100
with a copy to
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Attention: Lawrence Mittman, Esq.
Facsimile No.: 212-856-7807
Confirm: 212-856-7000
(d) COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) HEADINGS. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of Delaware.
(g) SEVERABILITY. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(h) SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement
----------------------
by or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of Holders are
also for the benefit of, and enforceable by, any subsequent holder of
Registrable Securities.
15
<PAGE>
(i) REMEDIES. Any Person having rights under any provision of this
--------
Agreement shall be entitled to enforce such rights specifically or to recover
damages or to exercise any other remedy available to it at law or in equity.
The foregoing rights and remedies shall be cumulative and the exercise of any
right or remedy provided herein shall not preclude any Person from exercising
any other right or remedy provided herein. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
(j) JURISDICTION; FORUM. Each party hereto consents and submits to the
-------------------
non-exclusive jurisdiction of any state court sitting in the County of New York
or federal court sitting in the Southern District of the State of New York in
connection with any dispute arising out of or relating to this Agreement. Each
party hereto waives any objection to the laying of venue in such courts and any
claim that any such action has been brought in an inconvenient forum. To the
extent permitted by law, any judgment in respect of a dispute arising out of or
relating to this Agreement may be enforced in any other jurisdiction within or
outside the United States by suit on the judgment, a certified copy of such
judgment being conclusive evidence of the fact and amount of such judgment.
Each party hereto agrees that personal service of process may be effected by any
of the means specified in Subsection (c), addressed to such party. The
foregoing shall not limit the rights of any party to serve process in any other
manner permitted by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
MARVEL ENTERPRISES, INC.
By: /s/ ERIC ELLENBOGEN
---------------------------------
Name: Eric Ellenbogen
Title: President and Chief Executive Officer
MARVEL ENTERTAINMENT GROUP, INC.
(with respect to Section 1(a) only)
By: /s/ WILLIAM H. HARDIE, III
---------------------------------
Name: William H. Hardie, III
Title: Secretary and Vice President
16
<PAGE>
THE STOCKHOLDERS
/s/ Avi Arad
-----------------------------------------------
Avi Arad
/s/ Isaac Perlmutter
-----------------------------------------------
Isaac Perlmutter
ISAAC PERLMUTTER T.A.
By: /s/ Isaac Perlmutter
--------------------------------------------
Isaac Perlmutter
Trustee
THE LAURA & ISAAC PERLMUTTER
FOUNDATION INC.
By: /s/ Isaac Perlmutter
--------------------------------------------
Name: Isaac Perlmutter
Title: President
ZIB INC.
By: /s/ Isaac Perlmutter
--------------------------------------------
Name: Isaac Perlmutter
Title: President and Chief Executive Officer
17
<PAGE>
Schedule 1
----------
If to Avi Arad:
c/o Avi Arad & Associates
1698 Post Road East
Westport, Connecticut 06880
Telecopy: (203) 254-2613
If to Isaac Perlmutter, Isaac Perlmutter T.A., The Laura & Isaac Perlmutter
Foundation Inc. or Zib Inc.:
P.O. Box 1028
Lake Worth, Florida 33460-1028
with a copy, in each case, to
Battle Fowler LLP
Park Avenue Tower
75 East 55th Street
New York, New York 10022
Attention: Lawrence Mittman, Esq.
Facsimile No.: 212-856-7807
Confirm: 212-856-7000
18
<PAGE>
EXHIBIT 10.5
EXECUTION
COPY
- - --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated February 25, 1999
among
MARVEL ENTERPRISES, INC.
MEI HOLDING COMPANY F CORP.
MEI HOLDING COMPANY S CORP.
MEI HOLDING COMPANY FHF CORP.
MRV, INC.
MALIBU COMICS ENTERTAINMENT, INC.
MARVEL CHARACTERS, INC.
MARVEL ENTERTAINMENT GROUP, INC.
MARVEL RESTAURANT VENTURE CORP.
and
MORGAN STANLEY & CO. INCORPORATED
- - --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into February 25, 1999, among MARVEL ENTERPRISES, INC., a Delaware
corporation (the "Company"), the subsidiaries of the Company listed in Annex A
(the "Guarantors") and MORGAN STANLEY & CO. INCORPORATED and WARBURG DILLON READ
LLC (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement dated
February 17, 1999, among the Company, the Guarantors and the Placement Agents
(the "Placement Agreement"), which provides for the sale by the Company to the
Placement Agents of an aggregate of $250,000,000 principal amount of the
Company's 12% Senior Notes Due 2009 (the "Securities"). The Securities will be
fully and unconditionally guaranteed on an unsubordinated basis by the
Guarantors. In order to induce the Placement Agents to enter into the Placement
Agreement, the Company and the Guarantors have agreed to provide to the
Placement Agents and its direct and indirect transferees the registration rights
set forth in this Agreement. The execution of this Agreement is a condition to
the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from time
--------
to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended
--------
from time to time.
"Closing Date" shall mean the Closing Date as defined in the Placement
------------
Agreement.
"Company" shall have the meaning set forth in the preamble and shall
-------
also include the Company's successors.
"Exchange Offer" shall mean the exchange offer by the Company of
--------------
Exchange Securities for Registrable Securities pursuant to Section 2(a)
hereof.
<PAGE>
2
"Exchange Offer Registration" shall mean a registration under the 1933
---------------------------
Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
-------------------------------------
registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by the Company and
-------------------
severally guaranteed by the Guarantors under the Indenture containing terms
identical to the Securities (except that the Exchange Securities will not
contain restrictions on transfer) and to be offered to Holders of
Securities in exchange for Securities pursuant to the Exchange Offer.
"Guarantors" shall have the meaning set forth in the preamble and
----------
shall also include any Guarantor's successor.
"Holder" shall mean the Placement Agents, for so long as they own any
------
Registrable Securities, and each of their successors, assigns and direct
and indirect transferees who become registered owners of Registrable
Securities under the Indenture; provided that, for purposes of Sections 4
--------
and 5 of this Agreement, the term "Holder" shall include Participating
Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the Securities dated
---------
as of February 25, 1999, among the Company, the Guarantors and IBJ
Whitehall Bank & Trust Company, as trustee, and as the same may be amended
from time to time in accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
----------------
aggregate principal amount of outstanding Registrable Securities; provided
--------
that, whenever the consent or approval of Holders of a specified percentage
of Registrable Securities is required hereunder, Registrable Securities
held by the Company shall not be counted in determining whether such
consent or approval was given by the Holders of such required percentage or
amount.
"Person" shall mean an individual, partnership, limited liability
------
company, corporation, trust or unincorporated organization, or a government
or agency or political subdivision thereof.
"Placement Agents" shall have the meaning set forth in the preamble.
---------------
"Placement Agreement" shall have the meaning set forth in the
-------------------
preamble.
<PAGE>
3
"Prospectus" shall mean the prospectus included in a Registration
----------
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to such prospectus,
and in each case including all material incorporated by reference therein.
"Registrable Securities" shall mean the Securities and the guarantees
----------------------
thereof by the Guarantors; provided, however, that the Securities and the
-------- -------
guarantees shall cease to be Registrable Securities (i) when a Registration
Statement with respect to such Securities and guarantees shall have been
declared effective under the 1933 Act and such Securities and guarantees
shall have been exchanged or disposed of pursuant to such Registration
Statement, (ii) when such Securities and guarantees have been sold to the
public pursuant to Rule 144(k) (or any similar provision then in force, but
not Rule 144A) under the 1933 Act or (iii) when such Securities and
guarantees shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
---------------------
performance of or compliance by the Company and the Guarantors with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. registration and filing
fees, (ii) all fees and expenses incurred in connection with compliance
with state securities or blue sky laws (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection with
blue sky qualification of any of the Exchange Securities or Registrable
Securities), (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi) the
fees and disbursements of the Trustee and its counsel, (vii) the fees and
disbursements of counsel for the Company and the Guarantors and, in the
case of a Shelf Registration Statement, the reasonable fees and
disbursements of one counsel for the Holders (which counsel shall be
selected by the Majority Holders and which counsel may also be counsel for
the Placement Agents) and (viii) the fees and disbursements of the
independent public accountants of the Company and the Guarantors, including
the expenses of any special audits or "cold comfort" letters required by or
incident to such performance and compliance, but excluding fees and
expenses of counsel to the underwriters (other than fees and expenses set
forth in clause (ii) above) or the Holders
<PAGE>
4
and underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of the
----------------------
Company and the Guarantors that covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission.
---
"Shelf Registration" shall mean a registration effected pursuant to
------------------
Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
----------------------------
statement of the Company and the Guarantors pursuant to the provisions of
Section 2(b) of this Agreement which covers all of the Registrable
Securities (but no other securities unless approved by the Holders whose
Registrable Securities are covered by such Shelf Registration Statement) on
an appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Trustee" shall mean the trustee with respect to the Securities under
-------
the Indenture.
"Underwriter" shall have the meaning set forth in Section 3 hereof.
-----------
"Underwritten Registration" or "Underwritten Offering" shall mean a
------------------------- ---------------------
registration in which Registrable Securities are sold to an Underwriter for
reoffering to the public.
<PAGE>
5
2. Registration Under the 1933 Act.
-------------------------------
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the Staff of the SEC, the Company and the Guarantors shall use
their best efforts to cause to be filed an Exchange Offer Registration Statement
covering the offer by the Company and the Guarantors to the Holders to exchange
all of the Registrable Securities for Exchange Securities and to have such
Registration Statement remain effective until the closing of the Exchange Offer.
The Company and the Guarantors shall commence the Exchange Offer promptly after
the Exchange Offer Registration Statement has been declared effective by the SEC
and use their best efforts to have the Exchange Offer consummated not later than
60 days after such effective date. The Company and the Guarantors shall
commence the Exchange Offer by mailing the related exchange offer Prospectus and
accompanying documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a period
of at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any rights
under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security exchanged
pursuant to the Exchange Offer will be required to surrender such
Registrable Security, together with the enclosed letters of transmittal, to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice prior to the close of
business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election, not
later than the close of business on the last Exchange Date, by sending to
the institution and at the address (located in the Borough of Manhattan,
The City of New York) specified in the notice a telegram, telex, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Registrable Securities delivered for exchange and a statement
that such Holder is withdrawing his election to have such Securities
exchanged.
As soon as practicable after the last Exchange Date, the Company and
the Guarantors shall:
<PAGE>
6
(i) accept for exchange Registrable Securities or portions thereof
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted for
exchange by the Company and issue, and cause the Trustee to promptly
authenticate and mail to each Holder, an Exchange Security equal in
principal amount to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company and the Guarantors shall use their best efforts to complete the
Exchange Offer as provided above and shall comply with the applicable
requirements of the 1933 Act, the 1934 Act and other applicable laws and
regulations in connection with the Exchange Offer. The Exchange Offer shall not
be subject to any conditions, other than that the Exchange Offer does not
violate applicable law or any applicable interpretation of the Staff of the SEC.
The Company shall inform the Placement Agents of the names and addresses of the
Holders to whom the Exchange Offer is made, and the Placement Agents shall have
the right, subject to applicable law, to contact such Holders and otherwise
facilitate the tender of Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company and the Guarantors determine
that the Exchange Offer Registration provided for in Section 2(a) above is not
available or may not be consummated as soon as practicable after the last
Exchange Date because it would violate applicable law or the applicable
interpretations of the Staff of the SEC, (ii) the Exchange Offer is not for any
other reason consummated by August 25, 1999 or (iii) the Exchange Offer has been
completed and in the opinion of counsel for the Placement Agents a Registration
Statement must be filed and a Prospectus must be delivered by the Placement
Agents in connection with any offering or sale of Registrable Securities, the
Company and the Guarantors shall use their best efforts to cause to be filed as
soon as practicable after such determination, date or notice of such opinion of
counsel is given to the Company, as the case may be, a Shelf Registration
Statement providing for the sale by the Holders of all of the Registrable
Securities and to have such Shelf Registration Statement declared effective by
the SEC. In the event the Company and the Guarantors are required to file a
Shelf Registration Statement solely as a result of the matters referred to in
clause (iii) of the preceding sentence, the Company and the Guarantors shall use
their best efforts to file and have declared effective by the SEC both an
Exchange Offer Registration Statement pursuant to Section 2(a) with respect to
all Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by the Placement
Agents after completion of the Exchange Offer. The Company and the Guarantors
agree to use their best efforts to keep the Shelf Registration Statement
continuously effective until the expiration of the period referred to in Rule
144(k) with respect to the Registrable Securities or such shorter period that
will terminate when all of the Registrable Securities covered by the Shelf
Registration
<PAGE>
7
Statement have been sold pursuant to the Shelf Registration Statement. The
Company and the Guarantors further agree to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, and to use their best efforts to
cause any such amendment to become effective and such Shelf Registration
Statement to become usable as soon as thereafter practicable. The Company and
the Guarantors agree to furnish to the Holders of Registrable Securities copies
of any such supplement or amendment promptly after its being used or filed with
the SEC.
(c) The Company and the Guarantors shall pay all Registration Expenses
in connection with the registration pursuant to Section 2(a) or Section 2(b).
Each Holder shall pay all underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to Section 2(a)
hereof or a Shelf Registration Statement pursuant to Section 2(b) hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that, if, after it has been declared effective, the
-------- -------
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. As provided for in the Indenture, in
the event the Exchange Offer is not consummated and the Shelf Registration
Statement is not declared effective on or prior to August 25, 1999, the interest
rate on the Securities will be increased by .5% per annum until the Exchange
Offer is consummated or the Shelf Registration Statement is declared effective
by the SEC.
(e) Without limiting the remedies available to the Placement Agents
and the Holders, the Company and the Guarantors acknowledge that any failure by
the Company or the Guarantors to comply with their obligations under Section
2(a) and Section 2(b) hereof may result in material irreparable injury to the
Placement Agents or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Placement Agents or any Holder may
obtain such relief as may be required to specifically enforce the Company's or
the Guarantors' obligations under Section 2(a) and Section 2(b) hereof.
<PAGE>
8
3. Registration Procedures.
-----------------------
In connection with the obligations of the Company and the Guarantors
with respect to the Registration Statements pursuant to Section 2(a) and Section
2(b) hereof, the Company and the Guarantors shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on the
appropriate form under the 1933 Act, which form (x) shall be selected by
the Company and the Guarantors and (y) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Securities by
the selling Holders thereof and (z) shall comply as to form in all material
respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the SEC to be
filed therewith, and use their best efforts to cause such Registration
Statement to become effective and remain effective in accordance with
Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus supplement and, as
so supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section 4(3)
and Rule 174 under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, to counsel for the Placement Agents, to counsel for
the Holders and to each Underwriter of an Underwritten Offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or Underwriter
may reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company and the
Guarantors consent to the use of such Prospectus and any amendment or
supplement thereto in accordance with applicable law by each of the selling
Holders of Registrable Securities and any such Underwriters in connection
with the offering and sale of the Registrable Securities covered by and in
the manner described in such Prospectus or any amendment or supplement
thereto in accordance with applicable law;
(d) use their best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement shall reasonably request in writing by the time the
applicable Registration Statement is declared effective by the SEC, to
cooperate with such Holders in connection with any filings required to be
made with the National Association of Securities Dealers, Inc. and do any
and all
<PAGE>
9
other acts and things which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in each such jurisdiction
of such Registrable Securities owned by such Holder; provided, however,
-------- -------
that neither the Company nor any Guarantor shall be required to (i) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for this Section
3(d), (ii) file any general consent to service of process or (iii) subject
itself to taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, counsel for the Holders and counsel for the
Placement Agents promptly and, if requested by any such Holder or counsel,
confirm such advice in writing (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has been filed and
becomes effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration Statement
and the closing of any sale of Registrable Securities covered thereby, the
representations and warranties of the Company or any Guarantor contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in
all material respects or if the Company or any Guarantor receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of
any proceeding for such purpose, (v) of the happening of any event during
the period a Shelf Registration Statement is effective which makes any
statement made in such Registration Statement or the related Prospectus
untrue in any material respect or which requires the making of any changes
in such Registration Statement or Prospectus in order to make the
statements therein not misleading and (vi) of any determination by the
Company or any Guarantor that a post-effective amendment to a Registration
Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment and provide immediate notice to each Holder of the
withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
<PAGE>
10
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may
reasonably request at least one business day prior to the closing of any
sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the occurrence of any
event contemplated by Section 3(e)(v) hereof, use their best efforts to
prepare and file with the SEC a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Company and the Guarantors agree to notify the
Holders to suspend use of the Prospectus as promptly as practicable after
the occurrence of such an event, and the Holders hereby agree to suspend
use of the Prospectus until the Company and the Guarantors have amended or
supplemented the Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of such
document to the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and their counsel) and make such
of the representatives of the Company and the Guarantors as shall be
reasonably requested by the Placement Agents or their counsel (and, in the
case of a Shelf Registration Statement, the Holders or their counsel)
available for discussion of such document, and shall not at any time file
or make any amendment to the Registration Statement, any Prospectus or any
amendment of or supplement to a Registration Statement or a Prospectus or
any document which is to be incorporated by reference into a Registration
Statement or a Prospectus, of which the Placement Agents and their counsel
(and, in the case of a Shelf Registration Statement, the Holders and their
counsel) shall not have previously been advised and furnished a copy or to
which the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or their counsel) shall reasonably
object;
(k) obtain a CUSIP number for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective date of a
Registration Statement;
<PAGE>
11
(l) cause the Indenture to be qualified under the Trust Indenture Act
of 1939, as amended (the "TIA"), in connection with the registration of the
Exchange Securities or Registrable Securities, as the case may be,
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and execute, and use their
commercially reasonable efforts to cause the Trustee to execute, all
documents as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable the Indenture to be
so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for inspection
by a representative of the Holders of the Registrable Securities, any
Underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner, all financial and
other records, pertinent documents and properties of the Company and the
Guarantors, and cause the respective officers, directors and employees of
the Company and the Guarantors to supply all information reasonably
requested by any such representative, Underwriter, attorney or accountant
in connection with a Shelf Registration Statement;
(n) in the case of a Shelf Registration, use their commercially
reasonable efforts to cause all Registrable Securities to be listed on any
securities exchange or any automated quotation system on which similar
securities issued by the Company or any Guarantor are then listed if
requested by the Majority Holders, to the extent such Registrable
Securities satisfy applicable listing requirements;
(o) use their commercially reasonable efforts to cause the Exchange
Securities to be rated by two nationally recognized statistical rating
organizations, to the extent the Registrable Securities are rated;
(p) if reasonably requested by any Holder of Registrable Securities
covered by a Registration Statement, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such information with
respect to such Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as the Company has received
notification of the matters to be incorporated in such filing; and
(q) in the case of a Shelf Registration, enter into such customary
agreements and take all such other actions in connection therewith
(including those requested by the Holders of a majority of the Registrable
Securities being sold) in order to expedite or facilitate the disposition
of such Registrable Securities including, but not limited to, an
Underwritten Offering and in such connection, (i) to the extent possible,
make such
<PAGE>
12
representations and warranties to the Holders and any Underwriters of such
Registrable Securities with respect to the business of the Company and its
subsidiaries, the Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in
each case, in form, substance and scope as are customarily made by issuers
to underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company and the
Guarantors (which counsel and opinions, in form, scope and substance, shall
be reasonably satisfactory to the Holders and such Underwriters and their
respective counsel) addressed to each selling Holder and Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold comfort"
letters from the independent certified public accountants of the Company
and the Guarantors (and, if necessary, any other certified public
accountant of any subsidiary of the Company or any Guarantor, or of any
business acquired by the Company or any Guarantor for which financial
statements and financial data are or are required to be included in the
Registration Statement) addressed to each selling Holder and Underwriter of
Registrable Securities, such letters to be in customary form and covering
matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings, and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a majority in
principal amount of the Registrable Securities being sold or the
Underwriters, and which are customarily delivered in underwritten
offerings, to evidence the continued validity of the representations and
warranties of the Company and the Guarantors made pursuant to clause (i)
above and to evidence compliance with any customary conditions contained in
an underwriting agreement.
In the case of a Shelf Registration Statement, the Company and the
Guarantors may require each Holder of Registrable Securities to furnish to the
Company and the Guarantors such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company and the Guarantors may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company and the Guarantors of the
happening of any event of the kind described in Section 3(e)(v) hereof, such
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to a Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company and the Guarantor, such Holder will deliver to the
Company and the Guarantors (at its expense) all copies in its possession, other
than permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company and the Guarantors shall give any such notice to suspend
the disposition of Registrable Securities pursuant to a Registration Statement,
the Company and the Guarantors shall extend the period during which the
<PAGE>
13
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. Any such suspensions may not exceed 60 days during any 365-
day period.
The Holders of Registrable Securities covered by a Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
Underwritten Offering. In any such Underwritten Offering, the investment banker
or investment bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
-------------------------------------------------
(a) The Staff of the SEC has taken the position that any broker-dealer
that receives Exchange Securities for its own account in the Exchange Offer in
exchange for Securities that were acquired by such broker-dealer as a result of
market-making or other trading activities (a "Participating Broker-Dealer"), may
be deemed to be an "underwriter" within the meaning of the 1933 Act and must
deliver a prospectus meeting the requirements of the 1933 Act in connection with
any resale of such Exchange Securities.
The Company and the Guarantors understand that it is the Staff's
position that if the Prospectus contained in the Exchange Offer Registration
Statement includes a plan of distribution containing a statement to the above
effect and the means by which Participating Broker-Dealers may resell the
Exchange Securities, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Securities owned by them, such Prospectus may
be delivered by Participating Broker-Dealers to satisfy their prospectus
delivery obligation under the 1933 Act in connection with resales of Exchange
Securities for their own accounts, so long as the Prospectus otherwise meets the
requirements of the 1933 Act.
(b) In light of the above, notwithstanding the other provisions of
this Agreement, the Company and the Guarantors agree that the provisions of this
Agreement as they relate to a Shelf Registration shall also apply to an Exchange
Offer Registration to the extent, and with such reasonable modifications thereto
as may be reasonably requested by the Placement Agents or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
--------
(i) the Company and the Guarantors shall not be required to amend or
supplement the Prospectus contained in the Exchange Offer Registration
Statement, as would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after
<PAGE>
14
the last Exchange Date (as such period may be extended pursuant to the
penultimate paragraph of Section 3 of this Agreement) and Participating
Broker-Dealers shall not be authorized by the Company and the Guarantors to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set forth in
Section 3 of this Agreement to an Exchange Offer Registration, to the
extent not required by the positions of the Staff of the SEC or the 1933
Act and the rules and regulations thereunder, will be in conformity with
the reasonable request to the Company and the Guarantors by the Placement
Agents or with the reasonable request in writing to the Company and the
Guarantors by one or more broker-dealers who certify to the Placement
Agents and the Company and the Guarantors in writing that they anticipate
that they will be Participating Broker-Dealers; and provided further that,
-------- -------
in connection with such application of the Shelf Registration procedures
set forth in Section 3 to an Exchange Offer Registration, the Company and
the Guarantors shall be obligated (x) to deal only with one entity
representing the Participating Broker-Dealers, which shall be Morgan
Stanley & Co. Incorporated unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one counsel
representing the Participating Broker-Dealers, which shall be counsel to
the Placement Agents unless such counsel elects not to so act and (z) to
cause to be delivered only one, if any, "cold comfort" letter with respect
to the Prospectus in the form existing on the last Exchange Date and with
respect to each subsequent amendment or supplement, if any, effected during
the period specified in clause (i) above.
(c) The Placement Agents shall have no liability to the Company, any
Guarantor or any Holder with respect to any request that it may make pursuant to
Section 4(b) above.
5. Indemnification and Contribution.
--------------------------------
<PAGE>
15
(a) Each of the Company and the Guarantors agrees jointly and
severally to indemnify and hold harmless the Placement Agents, each Holder and
each Person, if any, who controls the Placement Agents or any Holder within the
meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, or
is under common control with, or is controlled by, the Placement Agents or any
Holder, from and against all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred by the
Placement Agents, any Holder or any such controlling or affiliated Person in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement (or any amendment thereto) pursuant to which Exchange
Securities or Registrable Securities were registered under the 1933 Act,
including all documents incorporated therein by reference, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
caused by any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company and the
Guarantors shall have furnished any amendments or supplements thereto), or
caused by any omission or alleged omission to state therein a material fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission (i) based upon information relating to the
Placement Agents or any Holder furnished to the Company or the Guarantors in
writing through Morgan Stanley & Co. Incorporated or any selling Holder
expressly for use therein or (ii) contained in a Prospectus which the Company
has instructed Holders to discontinue using in accordance with Section 3(i)
hereof. In connection with any Underwritten Offering permitted by Section 3,
the Company and the Guarantors will also indemnify the Underwriters, if any,
selling brokers, dealers and similar securities industry professionals
participating in the distribution, their officers and directors and each Person
who controls such Persons (within the meaning of the 1933 Act and the 1934 Act)
to the same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company and the Guarantors, the Placement Agents and the other
selling Holders, and each of their respective directors, officers who sign the
Registration Statement and each Person, if any, who controls the Company, the
Guarantors, the Placement Agents and any other selling Holder within the meaning
of either Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same
extent as the foregoing indemnity from the Company and the Guarantors to the
Placement Agents and the Holders, but only (i) with reference to information
relating to such Holder furnished to the Company and the Guarantors in writing
by such Holder expressly for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto) and (ii) in
connection with the use by a Holder of a Prospectus which the Company has
instructed Holders to discontinue using in accordance with Section 3(i) hereof.
<PAGE>
16
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any Person in respect of which indemnity may be
sought pursuant to either paragraph (a) or paragraph (b) above, such Person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
Persons, if any, who control the Placement Agents within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, the Guarantors, its directors, its officers who sign the
Registration Statement and each Person, if any, who controls the Company or the
Guarantors within the meaning of either such Section and (c) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all Holders and all Persons, if any, who control any Holders within the meaning
of either such Section, and that all such fees and expenses shall be reimbursed
as they are incurred. In such case involving the Placement Agents and Persons
who control the Placement Agents, such firm shall be designated in writing by
Morgan Stanley & Co. Incorporated. In such case involving the Holders and such
Persons who control Holders, such firm shall be designated in writing by the
Majority Holders. In all other cases, such firm shall be designated by the
Company. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel as contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified
<PAGE>
17
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or paragraph
(b) of this Section 5 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company, the Guarantors and the
Holders shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Guarantors or by the Holders and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Holders' respective obligations to contribute pursuant to this
Section 5(d) are several in proportion to the respective principal amount of
Registrable Securities of such Holder that were registered pursuant to a
Registration Statement.
(e) The Company, the Guarantors and each Holder agree that it would
not be just or equitable if contribution pursuant to this Section 5 were
determined by pro rata allocation or by any other method of allocation that does
--- ----
not take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in paragraph (d) above shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Securities were sold by such Holder exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 5 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
<PAGE>
18
The indemnity and contribution provisions contained in this Section 5
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
the Placement Agents, any Holder or any Person controlling the Placement Agents
or any Holder, or by or on behalf of the Company, the Guarantors, their officers
or directors, or any Person controlling the Company or the Guarantors, (iii)
acceptance of any of the Exchange Securities and (iv) any sale of Registrable
Securities pursuant to a Shelf Registration Statement.
6. Miscellaneous.
-------------
(a) No Inconsistent Agreements. Neither the Company nor the
--------------------------
Guarantors have entered into, nor on or after the date of this Agreement will
enter into, any agreement which is inconsistent with the rights granted to the
Holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's or the Guarantors' other issued and outstanding
securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Guarantors have obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or consent; provided, however, that no amendment,
-------- -------
modification, supplement, waiver or consent to any departure from the provisions
of Section 5 hereof shall be effective as against any Holder of Registrable
Securities unless consented to in writing by such Holder.
(c) Notices. Except as provided in Section 6(j), all notices and
-------
other communications provided for or permitted hereunder shall be made in
writing by hand-delivery, registered first-class mail, telex, telecopier, or any
courier guaranteeing overnight delivery (i) if to a Holder, at the most current
address given by such Holder to the Company by means of a notice given in
accordance with the provisions of this Section 6(c), which address initially is,
with respect to the Placement Agents, the address set forth in the Placement
Agreement; and (ii) if to the Company or the Guarantors, initially at the
Company's address set forth in the Placement Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(c).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
<PAGE>
19
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
--------
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Placement Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such Person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement and such
Person shall be entitled to receive the benefits hereof. The Placement Agents
(in their capacity as Placement Agents) shall have no liability or obligation to
the Company or the Guarantors with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
(e) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Placement Agents, on the other hand, and
shall have the right to enforce such agreements directly to the extent it deems
such enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. This Agreement shall be governed by the laws of
-------------
the State of New York.
(i) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE>
20
(j) Miscellaneous. Each of the Company and the Guarantors agrees, for
-------------
the sole benefit of the Placement Agents:
(i) prior to the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement if, in the judgment of any
Placement Agent, it or any of its affiliates (as such term is defined in
the rules and regulations under the 1933 Act) is required to deliver an
offering memorandum in connection with sales of, or market-making
activities with respect to, the Securities or the Exchange Securities, (A)
to periodically amend or supplement the Final Memorandum (as defined in the
Placement Agreement) so that the information contained in the Final
Memorandum complies with the requirements of Rule 144A of the 1933 Act, (B)
to amend or supplement the Final Memorandum when necessary to reflect any
material changes in the information provided therein so that the Final
Memorandum will not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in light of the circumstances existing as of the date the Final
Memorandum is so delivered, not misleading and (C) to provide such
Placement Agent with copies of each such amended or supplemented Final
Memorandum, as such Placement Agent may reasonably request;
(ii) following the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement and for so long as the
Securities or the Exchange Securities are outstanding, if, in the judgement
of any Placement Agent, it or any of its affiliates (as such term is
defined in the rules and regulations under the 1933 Act) is required to
deliver a prospectus in connection with sales of, or market-making
activities with respect to, such securities, (A) to periodically amend the
applicable registration statement so that the information contained therein
complies with the requirements of Section 10(a) of the 1933 Act, (B) if
requested by such Placement Agent, within 45 days following the end of the
Company's and the Guarantors' most recent fiscal quarter, to file a
supplement to the prospectus included in the applicable registration
statement which sets forth the financial results of the Company and the
Guarantors for the previous quarter, (C) to amend the applicable
registration statement or supplement the related prospectus or the
documents incorporated therein when necessary to reflect any material
changes in the information provided therein so that the registration
statement and the prospectus will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances existing as of the
date the prospectus is so delivered, not misleading and (D) to provide such
Placement Agent with copies of each such amendment or supplement as such
Placement Agent may request;
(iii) notwithstanding clauses (i) and (ii) above, (A) prior to
amending the Final Memorandum or to filing any post-effective amendment to
any registration
<PAGE>
21
statement or to supplementing any related prospectus, to furnish to the
Placement Agents and their counsel, copies of all such documents proposed
to be amended, filed or supplemented, and (B) it will not issue any
amendment to the Final Memorandum, any post-effective amendment to a
registration statement or any supplement to a prospectus to which the
Placement Agents or their counsel shall object;
(iv) it shall notify the Placement Agents and their counsel and (if
requested by any such person) confirm such advice in writing, (A) when any
amendment to the Final Memorandum has been issued, when any prospectus
supplement or amendment or post-effective amendment has been filed, and,
with respect to any post-effective amendment, when the same has become
effective, (B) of any request by the SEC for any post-effective amendment
or supplement to a registration statement, any supplement or amendment to a
prospectus or for additional information, (C) the issuance by the SEC of
any stop order suspending the effectiveness of a registration statement or
the initiation of any proceedings for that purpose, (D) of the receipt by
it of any notification with respect to the suspension of the qualification
of the Securities or the Exchange Securities for sale in any jurisdiction
or the initiation or threatening of any proceedings for such purpose and
(E) of the happening of any event which makes any statement made in the
Final Memorandum, a registration statement, a prospectus or any amendment
or supplement thereto untrue or which requires the making of any change in
the Final Memorandum, a registration statement, a prospectus or any
amendment or supplement thereto, in order to make the statements therein
not misleading;
(v) it consents to the use of the Final Memorandum and any
prospectus referred to in this paragraph (j) or any amendment or supplement
thereto by any Placement Agent and its affiliates in connection with the
offering and sale of the Securities or Exchange Securities, as the case may
be; provided that upon receipt of any notice from the Company and the
Guarantors of the happening of any event of the kind described in clause
(iv)(E) of this paragraph (j), such Placement Agent and its affiliates will
forthwith discontinue disposition of such Securities or Exchange Securities
pursuant to any such Final Memorandum or prospectus until such Placement
Agent and its affiliates receive copies of a supplemented or amended Final
Memorandum or prospectus referred to in this paragraph (j); any such
suspensions may not exceed 60 days in any 365-day period; any notices to
the Placement Agents pursuant to this clause (v) shall be sent to Morgan
Stanley & Co. Incorporated, 1585 Broadway, New York, NY, 10036, Attention:
High Yield New Issues Group, facsimile number: (212) 761-0587, with copies
to (i) the Control Group, Attention of Bruce Bromberg, facsimile number
(212) 761-9709 and (ii) the attention of Dwight Sipprelle, facsimile number
(212) 761-3932, and shall be deemed to have been duly given or made only
upon receipt.
<PAGE>
22
(vi) In connection with any amendment or supplement to the Final
Memorandum or the effectiveness of the Shelf Registration Statement or any
amendment thereto or supplemental prospectus, in each case including any
Form 10-K or Form 10-Q that is incorporated by reference in such Final
Memorandum or Shelf Registration Statement required by this paragraph (j),
it will cause to be provided to any Placement Agent an opinion of counsel
(covering matters customarily covered in opinions delivered in underwritten
offerings) and a "cold comfort" letter from the Company's and each
Guaranto's independent public accountants (covering matters customarily
covered in "cold comfort" letters delivered in underwritten offerings) and
such documents and certificates as may be reasonably requested by such
Placement Agent.
(vii) it will comply with the provisions of this paragraph (j) at its
own expense and will reimburse the Placement Agents for their expenses
associated with this paragraph (j) (including reasonable fees of counsel);
and
(viii) it hereby expressly acknowledges that the indemnification and
contribution provisions of Section 8 of the Placement Agreement shall be
specifically applicable and relate to each offering memorandum,
registration statement, prospectus, amendment or supplement referred to in
this paragraph (j) except with respect to losses, claims or liabilities
resulting from the delivery of any offering memorandum or prospectus to the
extent that it is established that such offering memorandum or prospectus
was delivered by the Placement Agent after it received notice to
discontinue using it in accordance with clause (v) of this paragraph (j).
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
MARVEL ENTERPRISES, INC.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Executive Vice President, Business
Affairs and Secretary
MEI HOLDING COMPANY F CORP.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MEI HOLDING COMPANY S CORP.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MEI HOLDING COMPANY FHF CORP.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
<PAGE>
MRV, INC.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MALIBU COMICS ENTERTAINMENT, INC.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MARVEL CHARACTERS, INC.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
MARVEL ENTERTAINMENT GROUP, INC.
By /s/ William H. Hardie, III
-------------------------------------
Name: William H. Hardie, III
Title: Vice President and Secretary
<PAGE>
26
MARVEL RESTAURANT VENTURE CORP.
By /s/ William H. Hardie, III
--------------------------------
Name: William H. Hardie, III
Title: President and Secretary
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
WARBURG DILLON READ LLC
By: MORGAN STANLEY & CO. INCORPORATED
In its individual capacity and as representative
of the other Placement Agent
By /s/ Thomas S. Weng
--------------------
Name: Thomas Sun Weng
Title: Vice President
<PAGE>
ANNEX A
GUARANTORS
MEI Holding Company F
MEI Holding Company S Corp.
MEI Holding Company FHF Corp.
MRV, Inc.
Malibu Comics Entertainment, Inc.
Marvel Characters, Inc.
Marvel Entertainment Group, Inc.
Marvel Restaurant Venture Corp.
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of January 1, 1998, between Toy Biz,
Inc., a Delaware corporation (the "Company") and Joseph Ahearn (the
"Executive").
The Company wishes to employ the Executive, and the Executive wishes
to accept such employment, on the terms and conditions set forth in this
Agreement.
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby employs the Executive for
------------------
the Term (as defined in Section 2.1), to render exclusive and full-time services
to the Company as Chief Executive Officer or in such other executive position as
may be mutually agreed upon by the Company and the Executive, and to perform
such other duties consistent with such position as may be assigned to the
Executive by the Board of Directors. Notwithstanding the foregoing, the
Executive may devote up to fifty hours in any twelve month period to business
activities other than those of the Company.
1.2 Acceptance. The Executive hereby accepts such employment and
----------
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment (subject to the final sentence of Section 1.1), and to use the
Executive's best efforts, skill and ability to promote the Company's interests.
The Executive further agrees to accept election, and to serve during all or any
part of the Term, as an officer or director of the Company and of any subsidiary
or affiliate of the Company, without any compensation therefor other than that
specified in this Agreement, if elected to any such position by the shareholders
or by the Board of Directors of the Company or of any subsidiary or affiliate,
as the case may be.
1.3 Location. The duties to be performed by the Executive hereunder
--------
shall be performed primarily at the office of the Company in New York City,
subject to reasonable travel requirements on behalf of the Company.
2. Term of Employment
------------------
2.1 The Term. The term of the Executive's employment under this
--------
Agreement (the "Term") shall commence on January 1,
<PAGE>
1998 and shall end on December 31, 2000 or such later date to which the Term is
extended pursuant to Section 2.2.
2.2 Special Curtailment. The Term shall end earlier than the
-------------------
original December 31, 2000 termination date provided in Section 2.1, if sooner
terminated pursuant to Section 4. Non-extension of the Term shall not be deemed
to be a wrongful termination of the Term or this Agreement by the Company
pursuant to Section 4.
3. Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all services to be rendered pursuant
------
to this Agreement, the Company agrees to pay the Executive during the Term a
base salary, payable bi-weekly in arrears, at the annual rate of not less than
$600,000.00, less such deductions or amounts to be withheld as required by
applicable law and regulations (the "Base Salary"). The Company shall, on an
annual basis at the end of each calendar year, review the Executive's Base
Salary and determine, in its discretion, whether to increase the Base Salary,
and if so determined, such increased amount shall, from and after the effective
date of the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Bonus. In addition to the amounts to be paid to the Executive
-----
pursuant to Section 3.1, the Executive will be eligible, upon the decision of
the Board of Directors and in the Board's sole discretion, to receive a
discretionary bonus with respect to each year of the Term in such amount as the
Board in its sole discretion may determine.
3.3 Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers
provided, however, that the maximum amount available for such expenses during
- - -------- -------
any period may be fixed in advance by the Chairman of the Board of Directors or
the Board of Directors.
3.4 Vacation. During the Term, the Executive shall be entitled to a
--------
vacation period or periods taken in accordance with the vacation policy of the
Company during each year of the Term. Vacation time not used by the end of a
year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall be
---------------
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its employees generally, together
with
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<PAGE>
executive medical benefits for the Executive, as from time to time in effect for
officers of the Company generally.
3.6 Additional Benefits. During the Term, the Executive shall be
-------------------
entitled to such other benefits as are specified in Appendix I to this
Agreement.
4. Termination.
-----------
4.1 Death; Disability. If the Executive shall die during the Term,
-----------------
of if during the Term the Executive shall become physically or mentally
disabled, whether totally or partially, such that the Executive is unable to
perform the Executive's services hereunder for a period aggregating one (1)
month, the Term shall terminate and no further amounts or benefits shall be
payable hereunder.
4.2 Cause. In the event of gross neglect by the Executive of the
-----
Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement or any other conduct on the part of the
Executive which would make the Executive's continued employment by the Company
materially prejudicial to the best interests of the Company, the Company may at
any time by written notice to the Executive terminate the Term and, upon such
termination, this Agreement shall terminate and the Executive shall be entitled
to receive no further amounts or benefits hereunder, except any as shall have
been earned to the date of such termination.
4.3 Severance. The Company may at any time give notice of
---------
termination of Executive's services hereunder as of a date (not earlier than ten
(10) days from such notice) to be specified in such notice, and this Agreement
shall terminate on the date so specified; provided that, unless such notice is
given pursuant to Section 4.2, the Executive shall be entitled to receive his
salary and automobile allowance at the rates provided in Sections 3.1 and 3.6
hereof to the date on which termination shall take effect; and his salary and
automobile allowance at the rates provided in Sections 3.1 and 3.6, paid in, at
the Company's option, biweekly or monthly installments, for the twelve months
following such date of termination. The twelve (12) month period of severance,
unless sooner terminated as provided hereafter, shall be added to the actual
number of days the Executive was employed by the Company during the year of
termination for purposes of determining the achievement of the next vesting
threshold, if any, for the Executive in the Company's stock option plan. All
severance payments, automobile allowance and
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<PAGE>
the addition of the severance period to the number of days worked (as herein
provided for purposes of stock option vesting) shall cease upon Executive
beginning work as an employee or consultant for any other entity, regardless of
whether the Executive is terminated for cause or otherwise.
5. Protection of Confidential Information; Non-Competition
-------------------------------------------------------
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, and plans for future
developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by the Executive heretofore or hereafter, and
not to disclose them to anyone outside of the Company, either during or after
the Executive's employment with the Company, except in the course of performing
the Executive's duties hereunder or with the Company's express written consent;
and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 During the Term, and for a period of one (1) year after he ceases
to be employed by the Company under this Agreement or otherwise, if such
cessation arises as a result of a circumstance described in Section 4.1 or 4.2,
and also for a period of one (1) year after the Executive resigns, the Executive
shall not, directly or indirectly, enter the employ of, or render any services
to, any person, firm or corporation engaged in any business competitive with the
business of the Company or of any of its subsidiaries or affiliates; the
Executive shall not engage in such business on the Executive's own account; and
the Executive shall not become interested in any such business, directly or
indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship or
capacity; provided, however, that nothing contained in this Section 5.2 shall be
--------
deemed to prohibit the Executive from acquiring, solely as an investment, up to
five percent (5%) of the outstanding shares of capital stock of any public
corporation. Notwithstanding the foregoing, Executive may engage in, for up to
five (5) hours per
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<PAGE>
month or sixty (60) hours per year, activities for both affiliates and non-
affiliates, provided such activities do not directly compete with the business
of the Company. The foregoing prohibitions, following expiration of the Term or
early termination thereof, shall not prohibit the Executive from engaging in a
business which encompasses exclusively distressed or liquidation merchandise.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Section 5.2, and the Executive hereby agrees to account for
and pay over such Benefits to the Company. Each of the rights and remedies
enumerated above shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2, or any
part thereof, hereafter are construed to be invalid or unenforceable, the same
shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2, or any
part thereof, are held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 upon the courts of any
state within the geographical scope of such covenants. In the event that the
courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or
-5-
<PAGE>
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in law or
in equity is brought to enforce the covenants contained in Sections 5.1 and 5.2
or to obtain money damages for the breach thereof, and such action results in
the award of a judgment for money damages or in the granting of any injunction
in favor of the Company, all expenses (including reasonable attorneys' fees) of
the Company in such action, suit or other proceeding shall (on demand of the
Company) be paid by the Executive. In the event the Company fails to obtain a
judgment for money damages or an injunction in favor of the Company, all
expenses (including reasonable attorneys' fees) of the Executive in such action,
suit or other proceeding shall (on demand of the Executive) be paid by the
Company.
6. Inventions and Patents.
----------------------
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the Company,
provided that such Inventions grew out of the Executive's work with the Company
or any of its subsidiaries or affiliates, are related in any manner to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are conceived or made on the Company's time or with the use of
the company's facilities or materials. The Executive shall further: (a)
promptly disclose such Inventions to the Company; (b) assign to the Company,
without additional compensation, all patent and other rights to such Inventions
for the United States and foreign countries; (c) sign all papers necessary to
carry out the foregoing; and (d) give testimony in support of the Executive's
inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within two
years after the termination of the Executive's employment by the Company, it is
to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert any
rights to any Invention as having been made or acquired by the Executive prior
to the date of this Agreement,
-6-
<PAGE>
except for Inventions, if any, disclosed to the company in writing prior to the
date hereof.
7. Intellectual Property.
---------------------
The Company shall be the sole owner of all the products and proceeds
of the Executive's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments, arrangements,
packages, programs and other intellectual properties that the Executive may
acquire, obtain, develop or create in connection with and during the Term, free
and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's right
to receive payments hereunder). The Executive shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
8. Indemnification.
---------------
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred or
sustained by the Executive in connection with any action, suit or proceeding to
which the Executive may be made a party by reason of the Executive being an
officer, director or employee of the Company or of any subsidiary or affiliate
of the Company.
9. Notices.
-------
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by overnight courier or mailed
first class, postage prepaid, by registered or certified mail (notices mailed
shall be deemed to have been given on the date mailed), as follows (or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith):
If to the Company, to:
Toy Biz, Inc.
685 Third Avenue
New York, New York 10017
Attention: Board of Directors
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<PAGE>
If to the Executive, to:
Joseph Ahearn
130 Tuttle Road
Briarcliff Manor, New York 10510
10. General.
-------
10.1 This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
10.3 This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof. No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and neither party shall
be bound by or liable for any alleged representation, promise or inducement not
so set forth.
10.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
10.5 This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
-8-
<PAGE>
11. Subsidiaries and Affiliates.
---------------------------
11. As used herein, the term "subsidiary" shall mean any corporation
or other business entity controlled directly or indirectly by the Company or
other business entity in question, and the term "affiliate" shall mean and
include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the Company or other
business entity in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TOY BIZ, INC.
By: /s/ William H. Hardie, III
----------------------------------
Executive
/s/ Joseph Ahearn
-------------------------------------
Joseph Ahearn
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<PAGE>
APPENDIX I
----------
Additional Benefits:
- - --------------------
1. The Executive shall be entitled to an automobile allowance of one
thousand dollars ($1,000) per month, payable in accordance with the Company's
regular policy.
2. The Executive shall be entitled to participate in the Company's
stock option plan at a level commensurate with Executive's salary level, title
and responsibilities, as determined by the Compensation Committee of the Board
of Directors of the Company, and the Company agrees that the initial grant of
options (excluding consideration for any options replaced under any the
Company's current stock option plan) to the Executive following the consummation
of the Company's merger with Marvel Entertainment Group, Inc. will be in an
amount and on such terms so as to recognize the Executive's extraordinary
efforts on behalf of the Company in consummating such transaction and the
Executive's expected significant contribution to the activities of the Company
following the consummation of such transaction.
Joseph Ahearn
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<PAGE>
EXHIBIT 10.13
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
This Amendment, dated as of October 14, 1998 (this "Amendment"), to
the Employment Agreement, dated as of January 1, 1998 (the "Employment
Agreement"), between Toy Biz, Inc. ("Toy Biz") and Joseph Ahearn ("Ahearn").
The parties to this Amendment wish to amend the Employment Agreement as provided
herein.
PRELIMINARY STATEMENT
The plan of reorganization (the "Plan") for Marvel Entertainment
Group, Inc. ("Entertainment") that was proposed by Toy Biz and certain senior
secured lenders of Entertainment, in the bankruptcy cases of Entertainment, and
various subsidiaries of Entertainment in the District Court for the District of
Delaware was confirmed and consummated on October 1, 1998. Pursuant to the
Plan, a wholly-owned subsidiary of Toy Biz, merged (the "Merger") with and into
Entertainment, with Entertainment continuing as the surviving corporation and as
a wholly-owned subsidiary of Toy Biz. Pursuant to the Merger, Toy Biz changed
its name to Marvel Enterprises, Inc. ("Marvel"). The Merger has significantly
expanded the size and scope of Marvel's business.
The Board of Directors of Marvel proposes to hire an executive search
firm to assist it in recruiting appropriate candidates for senior management
positions. It is possible that, through such an executive search, Marvel will
identify one or more candidates for the position of chief executive officer and
president whose experience is more closely aligned with Marvel's expanded and
diversified lines of business after the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants set forth herein, and on the terms and subject to the
conditions set forth herein, the parties hereto agree as follows:
1. "Marvel", as used herein, shall at all times mean Marvel
Enterprises, Inc.
2. "Ahearn", as used herein, shall at all times mean Joseph M.
Ahearn.
3. The "Releasees", as used herein, shall at all times mean Marvel
Enterprises, Inc., its affiliates, subsidiaries, predecessors, successors and
assigns, the present or former officers, directors, employees, attorneys and
agents of all of them, whether in their individual or official capacities,
including, without limitation, Isaac Perlmutter and his affiliates, successors
and assigns, and agents.
4. Ahearn and Marvel acknowledge and agree that their employment
agreement, dated January 1, 1998, is amended hereby. Marvel may at any time
give notice of termination of Ahearn's employment hereunder as of a date to be
specified in such notice (a "Voluntary Marvel Termination"), and Ahearn's
employment hereunder shall terminate on the date so specified. Ahearn may give
notice of termination of his employment hereunder at any time after April 15,
1999 or at any earlier time if Marvel appoints a new chief executive officer or
president or a co-chief executive officer or co-president, and Ahearn's
employment hereunder shall terminate on the date of that notice (a "Voluntary
Ahearn Termination"). The date on which Ahearn's employment with Marvel
terminates pursuant to this Section 4 or pursuant to Section 4.2 of the
Employment Agreement is referred to in this Amendment as the "Separation Date".
Ahearn shall continue to serve as the Chief Executive Officer of Marvel
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<PAGE>
unless and until the Separation Date occurs, provided that he shall perform his
duties subject to the direction and oversight of the Board or the Transition
Committee of the Board, shall report to the Transition Committee and shall, in
addition, perform such duties which are both consistent with his position as
Chief Executive Officer and conferred upon or assigned to him from time to time
by the Board or the Transition Committee. If the Separation Date occurs, Ahearn
will also be deemed to have resigned from all positions that he holds with
Marvel and with any of its subsidiaries.
5. Section 4.2 of the Employment Agreement is hereby amended to
read as follows:
4.2 Cause. The Term may be terminated by the Company upon notice to
-----
the Executive upon the occurrence of any event constituting "Cause" as
defined herein. As used herein, the term "Cause" means: (i) the
Executive's willful and intentional failure or refusal to perform or
observe any of his material duties, responsibilities or obligations set
forth in this Agreement; provided, however, that the Company shall not be
-------- -------
deemed to have Cause pursuant to this clause (i) unless the Company gives
the Executive written notice that the specified conduct has occurred and
making specific reference to this Section 4.2(i) and the Executive fails to
cure the conduct within thirty (30) days after receipt of such notice; (ii)
any willful and intentional acts of the Executive involving malfeasance,
fraud, theft, misappropriation of funds, embezzlement or dishonesty
affecting the Company; or (iii) the Executive's conviction of an offense
which is a felony in the jurisdiction involved. Upon such termination, the
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<PAGE>
Executive shall be entitled to receive no further amounts or benefits
hereunder, except any as shall have been earned to the date of such
termination.
6. Until December 31, 1998, Ahearn shall continue to receive his
regular compensation and benefits under the Employment Agreement, less required
withholdings and benefits deductions.
7. Ahearn may submit any expense statements or vouchers that are
outstanding as of the date hereof on or before December 31, 1998.
8. As a special bonus, in recognition of services performed by him
in connection with the bankruptcy of Entertainment and Marvel's acquisition of
Entertainment and in consideration of his entering into this Amendment, prior to
December 31, 1998 Marvel shall pay Ahearn Four Hundred Fifty Thousand Dollars
($450,000.00), less required withholdings and benefits deductions. The payment
provided in this Section 8 shall be paid to Ahearn whether or not Ahearn's
employment has terminated as a result of a Voluntary Marvel Termination or a
Voluntary Ahearn Termination or as a result of Ahearn's death or disability.
9. Subject to Section 15 hereof, in lieu of regular payments of Base
Salary (as such term is defined in the Employment Agreement) on each of January
4, 1999 and January 3, 2000, Marvel shall pay Ahearn Six Hundred Thousand
Dollars ($600,000.00), less required withholdings and benefits deductions. The
payments provided in this Section 9 shall be paid to Ahearn whether or not
Ahearn's employment has terminated as a result of a Voluntary Marvel Termination
or a Voluntary Ahearn Termination or as a result of Ahearn's death or
disability.
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<PAGE>
10. Whether or not the Separation Date occurs prior to December 31,
2000, until the earlier of December 31, 2000 or the date that Ahearn obtains
other employment providing him with comparable coverage, Marvel shall continue
to provide Ahearn with the health and hospitalization insurance coverage which
Marvel generally provides to its senior executive officers and shall thereafter
provide Ahearn with COBRA benefits as required by law. Except as provided in
this Section 10 and stated in Sections 9 and 11 hereof, Ahearn will not be
entitled to receive any compensation or benefits from Marvel after December 31,
1998.
11. Until the Separation Date, and, subject to Section 15 hereof, if
the Separation Date occurs prior to April 15, 1999, thereafter until the earlier
of April 15, 1999 or the date that Ahearn obtains other full-time employment,
upon Ahearn's request, Marvel shall provide Ahearn with the use of: (i) as long
as Marvel's principal executive offices continue to be located at 685 Third
Avenue in New York City, Ahearn's current office and business telephone number
and will allow Ahearn the use of such office and will provide Ahearn with
appropriate office support services or (ii) if Marvel's principal executive
offices are relocated, with comparable office facilities and services at
Marvel's principal executive offices.
12. If the Separation Date occurs, Ahearn shall only be entitled to
receive the compensation and benefits due Ahearn under this Amendment. The
compensation and benefits due Ahearn under this Amendment shall not be subject
to reduction due to any compensation or benefits Ahearn may receive from other
sources after the Separation Date, including any compensation or benefits Ahearn
receives if Ahearn obtains other employment or self-employment.
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<PAGE>
13. Ahearn, in exchange for the promises of Marvel herein, for
himself and his heirs, legal representatives, estate and successors in interest,
hereby releases and forever discharges the Releasees of and from any and all
actions, causes of action, suits, debts, claims, complaints, contracts,
controversies, agreements, promises, damages, claims for attorneys' fees (other
than those specifically agreed to in this Amendment or in any separate written
agreements entered into in connection with this Amendment and other than
indemnification obligations owed to Ahearn by Marvel, including indemnification
obligations owed to Ahearn under Marvel's by-laws), cross-claims, claims for
contribution, claims for indemnity, claims for accrued vacation or personal
days, judgments, and demands whatsoever, in law or equity, he ever had, now has,
or shall have as of the date of this Amendment, including, but not limited to,
any of the following claims: (a) violation of Title VII of the Civil Rights Act
of 1964, as amended, 42 U.S.C. (S) 2000e et seq., (b) violation of the Age
-- ---
Discrimination in Employment Act of 1967, as amended, 29 U.S.C. (S) 621 et seq.,
-- ---
(c) violation of New York Human Rights Law, N.Y. Executive Law 290 et seq., (d)
-- ---
violation of the New York City Human Rights Law, N.Y.C. Adm. Code 8-101 et seq.,
-- ---
(e) claims for the breach of contract, wrongful discharge, invasion of privacy,
intentional infliction of emotion distress, defamation, or any other common law
tort or contract claims, or (f) violation of any federal, state or local law,
regulation or ordinance having any connection whatsoever with Ahearn's
employment with Marvel or the separation of his employment from Marvel. Ahearn
represents that he has received complete satisfaction of any and all claims,
whether known, suspected, or unknown, that he may have or have had against any
of the Releasees, and he hereby waives any and all relief not explicitly
provided for herein. Nothing in this
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<PAGE>
Amendment shall be deemed to release Marvel from any obligations that it owes to
Ahearn under Article 6 of Marvel's by-laws as in effect on the date of this
Amendment.
14. Ahearn agrees not only to release and discharge the Releasees
from any all claims which he could make on his own behalf, but also those which
may have been or may be made by any other person or organization on his behalf,
and he specifically waives any right to become, and promises not to become, a
member of any class in a case in which any claim or claims are asserted against
any of the Releasees involving any events occurring through the date of this
Amendment.
15. All obligations of Marvel under Sections 9, 10 and 11 after the
Separation Date are subject to the condition that, after the Separation Date,
Ahearn shall have delivered to Marvel, for its benefit and the benefit of the
Releasees, a release that is substantively identical to the releases given in
Paragraphs 13 and 14 and is dated on or after the Separation Date.
16. Marvel agrees, in exchange for the promises of Ahearn contained
herein, to irrevocably and unconditionally release Ahearn, his heirs and
beneficiaries, of and from any and all claims, complaints, controversies,
agreements, promises, damages, claims for attorney's fees, cross-claims, claims
for contribution, claims for indemnity, judgments, and demands whatsoever, in
law or equity, the Releasees ever had, now have, or shall have as of date of
this Amendment.
17. Marvel, in exchange for the promises of Ahearn made herein,
agrees to issue to Ahearn on or promptly after the Separation Date, a release
that is substantively identical to the release given in Paragraph 16 and is
dated on or after the Separation Date.
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<PAGE>
18. Ahearn and Marvel represent that they have received complete
satisfaction of any and all claims, whether known, suspected or unknown, that
they may have or have had against each other, and they hereby waive any and all
relief not explicitly provided for herein.
19. Ahearn and Marvel each promises never to file a lawsuit,
administrative proceeding or agency action asserting any claims which are
released in Paragraphs 13, 14 or 16, respectively of this Amendment or which are
released subject to the releases to be given as described in Paragraphs 15 and
17. Except to the extent otherwise required by law, each party further agrees
not to assist any other person in bringing any action, claim or demand against
the other party.
20. Ahearn agrees to refrain from taking any actions, either directly
or indirectly, or making any statements, directly or indirectly, to any person
or organization, including, but not limited to, members of the press and media,
and other members of the public, which will disparage Marvel, its officers,
directors or affiliates. Marvel agrees to refrain from taking any actions,
either directly or indirectly, or making any statements, directly or indirectly,
to any person or organization, including, but not limited to, members of the
press and media, and other members of the public, which will disparage Ahearn.
21. Ahearn shall have the right to review and approve statements made
in any press release concerning his termination. Ahearn's approval shall not be
unreasonably withheld.
-8-
<PAGE>
22. If it is determined by any court of competent jurisdiction that
any provision hereof is unlawful or unenforceable, the remaining provisions
hereof shall remain in full force and effect.
23. This Amendment contains the full agreement between Ahearn and
Marvel, and may not be modified, altered or changed except upon the express
prior written consent of both Ahearn and Marvel.
24. Ahearn acknowledges and agrees that: (a) no promise or inducement
for this Amendment has been made by any of the Releasees except as set forth in
this Amendment; (b) this Amendment is executed by him without reliance upon any
statement or representation by any of the Releasees other than as set forth
herein; (c) he fully understands this Amendment and the meaning of its
provisions; (d) he is legally competent to enter into this Amendment and to
accept full responsibility therefor; (e) he has been advised by Marvel to
consult with counsel and he has consulted with counsel before entering in to
this Amendment; (f) he has been given at least 21 days to consider this
Amendment; (g) he understands that he is entitled to revoke this Amendment
within seven days after he executes it by notifying Morton Handel, Chairman of
Marvel, in writing of the revocation; and (h) he voluntarily enters into this
Amendment.
25. This Amendment shall terminate and be of no further force or
effect if (i) the Chairman of the Transition Committee informs Ahearn in writing
that the search for candidates to fill senior management positions has ceased
and that the Transition Committee wishes Ahearn to remain chief executive
officer and president, and (ii) Ahearn agrees to terminate this Amendment.
Ahearn's agreement may be withheld for any reason whatsoever. If this Amendment
terminates as provided in this Section 25, the terms of the Employment
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<PAGE>
Agreement shall continue to apply, without giving any effect to this Amendment,
except that Ahearn will be entitled to retain any compensation and benefits paid
to him under this Amendment to that date and such compensation and benefits will
be in lieu of any compensation and benefits otherwise due Ahearn under the
Employment Agreement, except that the payments made under Section 9 prior to
that date shall be credited against payments due Ahearn under the Employment
Agreement.
26. Sections 5 through 11 of the Employment Agreement shall remain in
effect, notwithstanding this Amendment. All other sections of the Employment
Agreement are superceded by the terms of this Amendment.
27. Marvel agrees to reimburse Ahearn for his reasonable legal fees
and expenses incurred by him in preparation of this Amendment.
28. This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
29. This Amendment shall be subject to, governed by and interpreted
in accordance with the laws of the State of New York, without giving effect to
choice of law principles thereof.
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<PAGE>
IN WITNESS WHEREOF, the PARTIES have hereunto set their hands.
/s/ Joseph M. Ahearn
--------------------
JOSEPH M. AHEARN
MARVEL ENTERPRISES, INC.
By: /s/ Morton Handel
-------------------
MORTON HANDEL
CHAIRMAN OF THE BOARD
OF DIRECTORS
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<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of September 30, 1998, between Toy Biz,
Inc., a Delaware corporation (the "Company") and Avi Arad (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Company intends to acquire Marvel Entertainment Group,
Inc. (the "Acquisition").
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. Employment, Duties and Acceptance.
---------------------------------
1.1 Employment, Duties. The Company hereby employs the Executive for
------------------
the Term (as defined in Section 2.1), to render exclusive and full-time services
to the Company as (i) the sole senior creative officer of the Company, which is
the most senior creative office within the Company with respect to all media
activities, and to whom the entire creative operations of the Company will
report, either directly or indirectly, as to media activities, and (ii)
following consummation of the Acquisition, also as the President and Chief
Executive Officer of the Company's Marvel Media division (through which the
Company will conduct all of its multimedia activities), or in such other
executive position as may be mutually agreed upon by the Company and the
Executive. The Executive shall report solely to the Company's Chief Executive
Officer and Board of Directors and shall perform such other duties consistent
with such positions as may be assigned to the Executive by the Company's Chief
Executive Officer or Board of Directors. Notwithstanding the foregoing, the
Executive may devote up to 120 hours in any twelve month period to business
activities, other than those of the Company, in connection with services he may
perform pursuant to the pre-existing commitments identified on Schedule I (the
"Prior Commitments") or in connection with the activities of Avi Arad &
Associates ("Associates").
1.2 Acceptance. The Executive hereby accepts such employment and
----------
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment (subject to the final sentence of Section 1.1), and to
<PAGE>
use the Executive's best efforts, skill and ability to promote the Company's
interests. The Executive further agrees to accept election, and to serve during
all or any part of the Term, as an officer or director of the Company and of any
subsidiary or affiliate of the Company, without any compensation therefor other
than that specified in this Agreement, if elected to any such position by the
shareholders or by the Board of Directors of the Company or of any subsidiary or
affiliate, as the case may be; provided, however, that any such position shall
-------- -------
not diminish the scope of duties required to be performed by Executive, or
Executive's position or authority, pursuant to Section 1.1 hereof.
1.3 Location. The duties to be performed by the Executive hereunder
--------
shall be performed primarily at the principal executive office of the Company in
New York City, subject to reasonable and customary travel requirements on behalf
of the Company. The Company shall provide the Executive with office space,
selected by Executive and subject to approval by the Company's Board of
Directors, in California in connection with his activities on behalf of the
Marvel Media division. The Company shall also grant the Executive the power to
hire and dismiss appropriate staff, including, but not limited to,
administrative and secretarial assistance and other support service personnel
with respect to such office space, in accordance with the Company's approved
business plan.
2. Term of Employment
------------------
2.1 The Term. The term of the Executive's employment under this
--------
Agreement (the "Term") shall commence on September 30, 1998 and shall end on
December 31, 2000 or such later date to which the Term is extended pursuant to
Section 2.2 hereof.
2.2 Special Curtailment. The Term shall end earlier than the
-------------------
original December 31, 2000 termination date provided in Section 2.1 hereof, if
sooner terminated pursuant to Section 4 hereof. Non-extension of the Term shall
not be deemed to be a wrongful termination of the Term or this Agreement by the
Company pursuant to Section 4 hereof.
3. Compensation; Benefits.
----------------------
3.1 Salary. As compensation for all services to be rendered pursuant
------
to this Agreement, the Company agrees to pay the Executive during the Term a
base salary, payable bi-weekly in arrears, at the annual rate of not less than
$375,000.00, less such deductions or amounts to be withheld as required by
applicable law and regulations (the "Base Salary"). The Company shall, on an
annual basis at the end of each calendar year, review the Executive's Base
Salary and determine, in its discretion, whether to increase the Base Salary,
and if so
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<PAGE>
determined, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Bonus. In addition to the amounts to be paid to the Executive
-----
pursuant to Section 3.1 hereof, the Executive will be eligible, upon the
decision of the Board of Directors and in the Board's sole discretion, to
receive a discretionary bonus with respect to each year of the Term in such
amount as the Board in its sole discretion may determine.
3.3 Business Expenses. The Company shall pay for or reimburse the
-----------------
Executive for all reasonable first-class travel and other expenses actually
incurred by or paid by the Executive during the Term in the performance of the
Executive's services under this Agreement, upon presentation of expense
statements or vouchers or such other supporting information as the Company
customarily may require of its officers.
3.4 Vacation. During the Term, the Executive shall be entitled to a
--------
vacation period or periods customarily accorded senior executives of the Company
during each year of the Term, which in any event shall not be less than four (4)
weeks per calendar year. Vacation time not used by the end of a calendar year
shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive will participate
---------------
in all plans now existing or hereafter adopted by the Company for its management
employees or for the general benefit of its employees, such as any pension,
profit-sharing, bonus, stock option or other incentive compensation plans, life
and health insurance or other insurance plans and benefits on the same basis and
subject to the same qualifications as other executive officers.
3.6 Additional Benefits. During the Term, the Executive shall be
-------------------
entitled to such other benefits as are specified in Schedule II to this
Agreement.
4. Termination.
-----------
4.1 Death; Disability. If the Executive shall die during the Term,
-----------------
of if during the Term the Executive shall become physically or mentally
disabled, whether totally or partially, such that the Executive is unable to
perform the Executive's principal services hereunder for a period of more than
180 consecutive days, the Term shall terminate and no further amounts or
benefits shall be payable hereunder.
4.2 Cause. The Term may be terminated by the Company upon notice to
-----
the Executive upon the occurrence of any event constituting "Cause" as defined
herein. As used herein, the term
-3-
<PAGE>
"Cause" means: (i) the Executive's willful and intentional failure or refusal to
perform or observe any of his material duties, responsibilities or obligations
set forth in this Agreement; provided, however, that the Company shall not be
-------- -------
deemed to have Cause pursuant to this clause (i) unless the Company gives the
Executive written notice that the specified conduct has occurred and making
specific reference to this Section 4.2(i) and the Executive fails to cure the
conduct within thirty (30) days after receipt of such notice; (ii) any willful
and intentional acts of the Executive involving malfeasance, fraud, theft,
misappropriation of funds, embezzlement or dishonesty affecting the Company; or
(iii) the Executive's conviction of an offense which is a felony in the
jurisdiction involved.
4.3 Good Reason. The Term may be terminated by the Executive upon
-----------
notice to the Company of any event constituting "Good Reason" as defined herein.
As used herein, the term "Good Reason" means the occurrence of any of the
following, without the prior written consent of the Executive: (i) assignment of
the Executive to duties materially inconsistent with the Executive's positions
as described in Section 1.1 hereof, or any significant diminution in the
Executive's duties or responsibilities, other than in connection with the
termination of the Executive's employment for Cause, disability or as a result
of the Executive's death, or by the Executive other than for Good Reason; (ii) a
change in the location of the Executive's principal place of employment to a
location outside of New York City; (iii) any material breach of this Agreement
by the Company which is continuing; provided, however, that the Executive shall
-------- -------
not be deemed to have Good Reason pursuant to clauses (i) and (iii) above unless
the Executive gives the Company written notice that the specified conduct or
event has occurred and the Company fails to cure such conduct or event within
thirty (30) days of receipt of such notice.
4.4 By Executive without Good Reason or by the Company without Cause.
----------------------------------------------------------------
Either party hereto shall have the right to terminate the Term prior to its
scheduled termination, as noted in Section 2.1 hereof, upon thirty (30) days
prior written notice to the other party hereto.
4.5 Change in Control. If on or after the date hereof, and prior to
-----------------
the end of the Term, there occurs a "Change in Control" (as defined in the
Credit Agreement, dated on or about the date of the Acquisition, by and among
Toy Biz, Inc. (to be renamed Marvel Enterprises, Inc.), the Guarantors party
thereto, the Lenders party thereto, the Issuers referred to therein and UBS AG,
Stamford Branch, and Warburg Dillon Reed LLC), the Executive shall have the
right, at any time within thirty (30) days of obtaining knowledge of such Change
in Control, to give notice to the Company of termination of the Term as of a
date
-4-
<PAGE>
(which shall not be earlier than ten (10) days from such notice) to be specified
in such notice, and the Term shall terminate on the date so specified.
4.6 Severance. (a) If the Term is terminated upon the Executive's
---------
death or disability, by the Company for Cause or by the Executive pursuant to
Section 4.4 hereof, the Executive shall be entitled to receive his Base Salary
and any additional benefits provided hereunder at the rates provided in Sections
3.1 and 3.6 hereof to the date on which such termination shall take effect.
(b) If the Term is terminated by the Executive for Good Reason, by the
Company other than for Cause, or pursuant to a Change in Control, the Executive
shall be entitled to: (i) a lump sum payment equal to a sum which is the greater
of (w) the compensation due to the Executive under this Agreement until the
scheduled termination of the Term, as noted in Section 2.1 hereof, or (x) the
amount equal to the continuance of compensation due to the Executive under this
Agreement for one (1) year after the date of such termination; and (ii)
continuation of all other benefits provided by the Company to the Executive
hereunder for the greater of (y) the period until the scheduled termination of
the Term or (z) one (1) year after the date of such termination. In addition,
all equity arrangements provided to the Executive hereunder or under any
employee benefit plan of the Company shall continue to vest for the greater of
the period until the scheduled termination of the Term or one (1) year after the
date of such termination.
(c) The amounts required to be paid and the benefits required to be made
available to the Executive under this Section 4.6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be off-set or in any other way
limit or reduce the obligations of the Company under this Section 4.6.
5. Protection of Confidential Information; Non-Competition
-------------------------------------------------------
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, as well as plans for future
developments by the Company, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes,
-5-
<PAGE>
formulae, inventions and research projects, and other business affairs of the
Company, learned by the Executive heretofore or hereafter, and not to disclose
them to anyone outside of the Company, either during or after the Executive's
employment with the Company, except in the course of performing the Executive's
duties hereunder or with the Company's express written consent; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 (a) During the Term, and for a period of one (1) year after he
ceases to be employed by the Company under this Agreement or otherwise, if such
cessation arises as a result of a circumstance described in Section 4.2 hereof,
or as a result of termination of the Term by the Executive pursuant to Section
4.4 hereof, the Executive shall not, directly or indirectly, enter the employ
of, or render any services to, any person, firm or corporation engaged in any
business competitive with the business of the Company or of any of its
subsidiaries or affiliates (except to the extent provided in Section 1.1 with
respect to the Executive's activities on behalf of Associates or the Prior
Commitments); the Executive shall not engage in such business on the Executive's
own account (except to the extent provided in Section 1.1 with respect to the
Executive's activities on behalf of Associates or the Prior Commitments); and
the Executive shall not become interested in any such business, directly or
indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship or
capacity; provided, however, that nothing contained in this Section 5.2 shall be
-------- -------
deemed to prohibit the Executive from acquiring, solely as an investment, up to
five percent (5%) of the outstanding shares of capital stock of any public
corporation.
(b) For a period of six (6) months after the Executive terminates the
Term pursuant to Section 4.4 or 4.5 hereof, the Executive shall not, directly or
indirectly, undertake or otherwise be involved in any media or toy projects
which were under active development or consideration by the Company at the time
of the termination of his employment.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
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<PAGE>
5.3.1 The right and remedy to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Section 5.2 hereof, and the Executive hereby agrees to account
for and pay over such Benefits to the Company. Each of the rights and remedies
enumerated above shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2 hereof,
or any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2 hereof,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties hereto agree that the
court making such determination shall have the power to reduce the duration
and/or area of such provision and, in its reduced form, said provision shall
then be enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 hereof upon the courts
of any state within the geographical scope of such covenants. In the event that
the courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Company's right to the relief provided above in the courts of any
other states within the geographical scope of such covenants as to breaches of
such covenants in such other respective jurisdictions, the above covenants as
they relate to each state being for this purpose severable into diverse and
independent covenants.
5.7 In the event that any action, suit or other proceeding in law or
in equity is brought to enforce the covenants contained in Sections 5.1 and 5.2
hereof or to obtain
-7-
<PAGE>
money damages for the breach thereof, and such action results in the award of a
judgment for money damages or in the granting of any injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Company in
such action, suit or other proceeding shall (on demand of the Company) be paid
by the Executive. In the event the Company fails to obtain a judgment for money
damages or an injunction in favor of the Company, all expenses (including
reasonable attorneys' fees) of the Executive in such action, suit or other
proceeding shall (on demand of the Executive) be paid by the Company.
6. Inventions and Patents.
----------------------
6.1 The Executive agrees that all processes, technologies and
inventions, including new contributions, improvements, ideas and discoveries,
whether patentable or not, conceived, developed, invented or made by him during
the Term or for one year thereafter (collectively, "Inventions") shall belong to
the Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its subsidiaries or affiliates, are related to the
business (commercial or experimental) of the Company or any of its subsidiaries
or affiliates or are conceived or made on the Company's time or with the use of
the Company's facilities or materials and; provided, further, however, that the
-------- ------- -------
foregoing shall not apply to any Inventions which are (a) assigned to Associates
and licensed to the Company by Associates pursuant to the Master License
Agreement, dated as of April 30, 1993, between Associates and the Company as
amended (the "Master License") or any license agreement entered into in
accordance therewith or (b) the Prior Commitments. The Executive shall further:
(a) promptly disclose such Inventions to the Company; (b) assign to the Company,
without additional compensation, all patent and other rights to such Inventions
for the United States and foreign countries; (c) sign all papers necessary to
carry out the foregoing; and (d) give testimony in support of the Executive's
inventorship.
6.2 The Executive agrees that the Executive will not assert any
rights to any Invention as having been made or acquired by the Executive prior
to the date of this Agreement, except for Inventions, if any, listed on Schedule
III attached hereto.
7. Intellectual Property.
---------------------
Except as provided in Section 6 above, the Company shall be the sole
owner of all the products and proceeds of the Executive's services hereunder,
including, but not limited to, all materials, ideas, concepts, formats,
suggestions, developments, arrangements, packages, programs and other
intellectual properties that the Executive may acquire, obtain, develop or
create in connection with and during the Term, free
-8-
<PAGE>
and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's right
to receive payments hereunder). The Executive shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
8. Indemnification.
---------------
To the fullest extent permitted by applicable law, Executive shall be
indemnified and held harmless for any action or failure to act in his capacity
as an officer or employee of the Company. In furtherance of the foregoing and
not by way of limitation, if Executive is a party or is threatened to be made a
party to any suit because he is an officer or employee of the Company, he shall
be indemnified against expenses, including reasonable attorney's fees,
judgments, fines and amounts paid in settlement if he acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interest of the
Company, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. Indemnification under this
Section 8 shall be in addition to any other indemnification by the Company of
its officers and directors. Expenses incurred by Executive in defending an
action, suit or proceeding for which he claims the right to be indemnified
pursuant to this Section 8 shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Executive to repay such amount in the event that it shall
ultimately be determined that he is not entitled to indemnification by the
Company. Such undertaking shall be accepted without reference to the financial
ability of Executive to make repayment. In addition, the Company shall use its
best efforts to obtain and maintain a directors' and officers' liability
insurance policy at a reasonable cost providing insurance coverage with respect
to claims made against officers and directors as to which they are entitled to
be indemnified by the Company.
9. Notices.
-------
All notices, requests, consents and other communica tions required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by overnight courier or mailed
first class, postage prepaid, by registered or certified mail (notices mailed
shall be deemed to have been given on the date mailed), as follows (or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith):
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<PAGE>
If to the Company, to:
Toy Biz, Inc.
685 Third Avenue
New York, New York 10017
Attention: Chief Executive Officer
If to the Executive, to:
Avi Arad
6 Minute Man Hill
Westport, CT 06880
10. General.
-------
10.1 This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely in New York, without regard to the conflict of
law principles of such state.
10.2 The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
10.3 This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof. No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and neither party shall
be bound by or liable for any alleged representation, promise or inducement not
so set forth.
10.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
10.5 This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any
time or times to require performance of any provision hereof shall in no manner
affect the right at a later
-10-
<PAGE>
time to enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any other
term or covenant contained in this Agreement.
11. Subsidiaries and Affiliates.
---------------------------
As used herein, the term "subsidiary" shall mean any corporation or
other business entity controlled directly or indirectly by the Company or other
business entity in question, and the term "affiliate" shall mean and include any
corporation or other business entity directly or indirectly controlling,
controlled by or under common control with the Company or other business entity
in question.
12. Royalties Under Master License.
------------------------------
The Master License is hereby amended to provide that the Company's
royalty obligation to the Executive under the Master License for Marvel products
for which the Executive is the inventor of record, is fixed at $650,000 per
year, in lieu of the current four percent (4%) royalty rate (six percent (6%) on
sales FOB the Orient). With respect to non-Marvel items for which the Executive
is the inventor or record, the terms of the Master License shall remain in
effect, with the Executive receiving a negotiated amount not to exceed five
percent (5%) of net sales.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
TOY BIZ, INC.
By: /s/ Joseph M. Ahearn
---------------------------------------
Name:
Title:
EXECUTIVE:
/s/ Avi Arad
------------------------------------------
Avi Arad
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<PAGE>
SCHEDULE II
-----------
Additional Benefits:
- - --------------------
1. The Company shall provide the Executive use of a Mercedes 500 SEL
or similar automobile, and a driver, selected by the Executive, for such
automobile.
2. The Executive shall be entitled to participate in the Company's
stock option plan at a level commensurate with Executive's salary level, title
and responsibilities, as determined by the Compensation Committee of the Board
of Directors of the Company.
3. With respect to each media project for which the Executive
performs significant services, the Executive shall be entitled to retain, in
addition to the Base Salary and other benefits provided for hereunder, all
Executive Producer and/or Producer fees customarily payable by the licensee
under any television, motion picture or home video license entered into by the
Company during the Term. Such fees shall be not more than $10,000 per episode
for animated television projects and not more than $250,000 for any one motion
picture project.
Avi Arad
<PAGE>
SCHEDULE III
------------
Inventions
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of November 11, 1998, by and between Marvel
Enterprises, Inc. (the "Company") and Eric Ellenbogen (the "Executive").
1. Employment Term. The Company hereby agrees to employ the
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Executive, and the Executive hereby agrees to enter the employ of the Company,
on the terms and conditions set forth herein, commencing on December 7, 1998
(the "Effective Date") and terminating on December 7, 2001 (the "Scheduled
Termination Date"), unless terminated earlier in accordance with Section 4 below
(the "Employment Term"). The Scheduled Termination Date shall be automatically
postponed for one year, and the Employment Term shall be automatically extended
by one year, unless either party hereto provides the other party with written
notice, not later than the second anniversary of the Effective Date, of its
election not to permit the Employment Term to be so extended, and the Scheduled
Termination Date shall thereafter be automatically postponed for one additional
year and the Employment Term shall thereafter be automatically extended by one
additional year, on each subsequent anniversary of the Effective Date, unless
either party provides the other party with written notice, not later than sixty
(60) days prior to such subsequent anniversary of the Effective Date, of its
election not to permit the Employment Term to be so extended.
2. Title/Duties/Authority.
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(a) During the Employment Term, the Executive shall be employed as
President and Chief Executive Officer of the Company. The Executive shall be
subject to the direction and control of, and shall report directly to, the Board
of Directors of the Company (the "Board"), shall be the most senior person
performing executive responsibilities and possessing executive authority with
respect to the operation and management of the business of the Company and its
subsidiaries, and all other employees of the Company shall report, directly or
indirectly, to the Executive. The Executive shall recommend for the approval of
the Compensation Committee of the Board the levels of base pay, bonus and long-
term incentive awards for employees of the Company whose annual compensation
exceeds $150,000 and executive officers of the Company and shall consult with
the Compensation Committee of the Board concerning hiring and termination of all
such employees and executive officers of the Company. During the Employment
Term, the Executive shall actively participate in all determinations concerning
acquisitions, dispositions and other major transactions engaged in by the
Company or its subsidiaries. During the Employment Term the Executive shall
serve on the Board. The Executive's place of employment shall be in New York
City, subject to required travel on Company business.
(b) During the Employment Term, and excluding any periods of
vacation, holiday and sick leave to which the Executive is entitled, the
Executive agrees to devote his full business time to the business and affairs of
the Company and to use the Executive's best efforts to perform faithfully and
efficiently such responsibilities, provided that during the first thirty (30)
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days of the Employment Term, the Executive shall be permitted to devote
reasonable business time and attention to matters relating to his prior
employment with Golden Books Family Entertainment, Inc. During the Employment
Term, it shall not be a violation of this Agreement for the Executive to (a)
serve on corporate, civic or charitable boards or committees and (b) deliver
lectures, fulfill speaking engagements or teach at educational institutions, so
long as such activities do not interfere with the Executive's primary duties and
responsibilities as an employee of the Company in accordance with this
Agreement.
3. Compensation and Benefits.
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(a) Base Salary. During the Employment Term, the Executive shall
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receive an annual base salary ("Annual Base Salary") equal to $750,000. During
the Employment Term, the Executive's Annual Base Salary shall be reviewed not
less frequently than annually and may be adjusted upward, but not downward, at
the discretion of the Board.
(b) Annual Bonus. In addition to Annual Base Salary, the
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Executive shall be eligible to earn, for each fiscal year ending during the
Employment Term commencing with the 1999 fiscal year, an annual bonus (the
"Annual Bonus") based on the attainment of performance goals (the "Bonus
Performance Goals") that meet the requirements of Treasury Regulation (S)1.162-
27(e)(2)(i) and (ii) under the Internal Revenue Code of 1986, as amended (the
"Code"). The target Annual Bonus shall be equal to the greater of (i) 60% or
(ii) the highest target level of annual bonus award provided by the Company to
any other executive officer of the Company, of the Executive's Annual Base
Salary, and shall be reasonably scaled upwards and downwards in case of
performance above or below the Bonus Performance Goals in compliance with
Section 162(m) of the Code. One-half of each Annual Bonus shall be paid in cash
and one-half of each Annual Bonus shall be paid in common stock of the Company,
par value $0.1 per share ("Stock"), valued at the average of the average daily
high and low sale prices (or of the closing bid and asked price if high and low
sale prices are not published) for such stock as quoted on the principal
securities exchange on which such stock is listed for trading for the twenty
trading days ending on the last day of the fiscal year for which the Annual
Bonus is awarded. Each Annual Bonus shall be paid no later than the end of the
third month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the receipt
of such Annual Bonus.
(c) Stock Options. (i) The Executive will be granted, as of the
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Effective Date, a stock option (the "Option") to purchase 960,000 shares of
Stock under the Company's 1998 Stock Incentive Plan, substantially in the form
separately delivered to the Executive by the Company at the time of the
execution and delivery of this Agreement by the Company and the Executive (the
"1998 Stock Incentive Plan"). The Company represents to the Executive that the
1998 Stock Incentive Plan has been approved by the Board. The Company agrees
that it will solicit the approval of the 1998 Stock Incentive Plan by vote or
written consent of the stockholders of the Company no later than the next annual
meeting of the stockholders of the Company. The Company will promptly take all
actions necessary to list the shares available to be issued pursuant to the 1998
Stock Incentive Plan with the New York Stock Exchange ("NYSE Listing"). The
exercise of the Option will be subject to approval by the stockholders of the
Company ("Stockholder Approval") and NYSE
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Listing. The exercise price with respect to each share of Stock subject to the
Option will be $6.125. Except as provided in Section 5 of this Agreement, the
Option will have a term of ten years and, subject to Stockholder Approval and
NYSE Listing , will become exercisable as to one-quarter of the shares of Stock
subject thereto on each of (A) the Effective Date and (B) each of the first,
second and third anniversaries of the Effective Date, provided that the Option
shall become immediately exercisable in full upon the occurrence of a Third
Party Change in Control (as hereinafter defined) of the Company. The Company
agrees that while the Option is outstanding, it will take all reasonable actions
to assure that the conditions in Sections 17.2 and 17.4 of the 1998 Stock
Incentive Plan do not prevent the exercise of the Option or the delivery of the
shares of Stock issuable upon exercise of the Option.
(ii) Notwithstanding Section 3(c)(i) of this Agreement, no portion of the
Option shall become exercisable after the Effective Date and prior to the
earlier of the second anniversary of the Effective Date or the occurrence of a
Third Party Change in Control (as defined below), if the effect would be to
cause an adjustment in the exercise price of the Company's Class B Warrants to
purchase shares of the Company's 8% Cumulative, Convertible, Exchangeable
Preferred Stock. Any portion of the Option which would have become exercisable
but for this Section 3(c)(ii) shall become exercisable immediately on the
earlier of (A) the second anniversary of the Effective Date, (B) the expiration
of all of the Company's Class B Warrants to purchase shares of the Company's 8%
Cumulative, Convertible, Exchangeable Preferred Stock, and (C) the occurrence of
a Third Party Change in Control. The Company agrees to notify the Executive
promptly after any portion of the Option which would have become exercisable but
for this Section 3(c)(ii) becomes exercisable.
(iii) To the extent reasonably practicable, the Company will maintain in
effect a registration statement on Form S-8 (or such other successor form as may
be applicable) with respect to the offer and sale of shares to the Executive
pursuant to the Option.
(iv) The Option will be governed by the terms and conditions of the 1998
Stock Incentive Plan and the Stock Option Agreement thereunder (the "Stock
Option Agreement") substantially in the form separately delivered to the
Executive by the Company at the time of the execution and delivery of this
Agreement by the Company and the Executive.
(d) Savings and Retirement Plans. During the Employment Term, the
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Executive shall be eligible to participate in all savings and retirement plans,
practices, policies and programs, if any, that are applicable generally to other
senior executives of the Company and its subsidiaries.
(e) Welfare Benefit Plans. During the Employment Term, the Executive
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and his family shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs provided
by the Company and its subsidiaries (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life,
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group life, accidental death and travel accident insurance plans and programs,
if any) that are applicable generally to other senior executives of the Company
and its subsidiaries.
(f) Expenses. The Company shall pay or reimburse the Executive for
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all reasonable expenses actually incurred or paid by the Executive during the
Employment Term in the performance of the Executive's services under this
Agreement, in accordance with the Company's expense reimbursement policies
applicable to its most senior executive officers but in no event less frequently
than bi-weekly upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of such officers.
(g) Legal Fees. The Company shall reimburse the Executive for the
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reasonable cost of preparation and review of this Employment Agreement.
(h) Vacation and Holidays. During the Employment Term, the Executive
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shall be entitled to four weeks of paid vacation per year to be taken in
accordance with the vacation policy of the Company and shall also be entitled to
all other paid holidays given to employees of the Company. At the conclusion of
each calendar year, unused vacation days, if any, shall be forfeited.
4. Termination of Employment.
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(a) Cause. The Company may terminate the Executive's employment
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during the Employment Term for Cause. For purposes of this Agreement, "Cause"
shall mean: (i) the conviction of, or pleading guilty to, a felony or crime
involving moral turpitude; or (ii) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates after a written demand for substantial performance is
delivered to the Executive by the Board, which specifically identifies the
manner in which the Board believes that the Executive has not substantially
performed the Executive's duties or covenants under this Agreement or the
Executive's willful and material violation of Section 8(a) of this Agreement; or
(iii) any willful act of the Executive involving fraud, theft, misappropria
tion of funds or embezzlement affecting the Company or any of its affiliates or
any other willful misconduct which has, or could reasonably be expected to have,
a material adverse effect on the Company or any of its affiliates or (iv) a
disability that prohibits the Executive from substantially meeting his
responsibilities as a senior executive of the Company on a full-time basis for
90 out of 120 consecutive business days ("Disability").
For purposes of this provision, no act or failure to act, on the part
of the Executive shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, by the Executive based upon authority given to the
Executive pursuant to a resolution duly adopted by the Board or based upon the
advice of regular outside counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interests of the Company. Termination of the Executive's employment for
Cause shall be effective upon receipt of notice pursuant to
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Section 4(e). For purposes of this provision, termination of the Executive's
employment on account of the Disability of the Executive shall be by written
notice to the Executive, effective 30 days after receipt thereof by the
Executive, provided that, within 30 days after such receipt, the Executive shall
not have returned to full-time performance of the Executive's duties.
(b)(1) Good Reason. The Executive's employment may be terminated by
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the Executive at any time during the Employment Term for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean in each case, without the
Executive's prior written consent specifically referencing this Section 4(b)(1):
(i) the assignment to the Executive of duties inconsistent with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 2 of this Agreement, or any other action by the Company which
diminishes, in more than an immaterial manner, such position, authority,
duties or responsibilities;
(ii) failure by the Company to comply with any of the compensation
and benefits provisions of Section 3 of this Agreement;
(iii) failure by the Company to comply with any material covenant or
agreement contained in this Agreement;
(iv) the Company's requiring the Executive to be based at any office
or location outside New York City;
(v) failure of the Company to obtain Stockholder Approval or NYSE
Listing prior to June 30, 1999;
(vi) the occurrence of a Third Party Change in Control.
(vii) the occurrence of a Perlmutter/Arad Change in Control.
To assert that an event described in clauses (i), (ii) or (iii)
constitutes Good Reason, within 60 days of the date the Executive obtains actual
knowledge of that event, the Executive must have given notice to the Company
stating that Good Reason exists and identifying in reasonable detail the event
or events which the Executive believes constitute Good Reason. To terminate his
employment with the Company for Good Reason, after providing the notice
described in the preceding sentence, the Executive must thereafter notify the
Company within 120 days of obtaining knowledge of the occurrence of the event
constituting Good Reason that he desires to terminate his employment with the
Company for Good Reason as a result of such event. In the case of an event
described in clauses (i), (ii) or (iii) above, the effective date of the
Executive's termination of employment shall be at least 20 but no more than 30
days after the receipt by the Company of the Executive's notice of his desire to
terminate and, if such event did not result from a bad faith action or omission
by the Company, the Company shall have an opportunity to cure prior to the
effective date of the Executive's termination. In the case of an
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event described in clause (iv), (v), (vi) or (vii), the effective date of the
Executive's termination of employment shall be the date set forth in such
notice.
(2) Definition of Third Party Change in Control. For purposes of
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this Agreement, a Third Party Change in Control shall be deemed to have occurred
if (i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
other than an Excluded Person or Excluded Group (as defined below) (hereinafter,
a "Third Party"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing thirty-three and one-third (33%) or more of the
combined voting power of the Company's then outstanding securities entitled to
vote in the election of directors of the Company, (ii) the Company is a party to
any merger, consolidation or similar transaction as a result of which the
shareholders of the Company immediately prior to such transaction beneficially
own securities of the surviving entity representing less than fifty percent
(50%) of the combined voting power of the surviving entity's outstanding
securities entitled to vote in the election of directors of the surviving entity
or (iii) all or substantially all of the assets of the Company are acquired by a
Third Party. "Excluded Group" means a "group" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) that (i) includes one or more Excluded
Persons; provided that the voting power of the voting stock of the Company
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a majority
of the voting power of the voting stock "beneficially owned" (as such term is
used in Rule 13d-3 promulgated under the Exchange Act) by such group or (ii)
exists solely by virtue of the fact that the members of such group are parties
to the Stockholders' Agreement, dated as of October 1, 1998, by and among the
Company, Isaac Perlmutter, Avi Arad, Mark Dickstein, The Chase Manhattan Bank,
Morgan Stanley & Co. Incorporated, Whippoorwill Associates Incorporated and
various other stockholders of the Company (the "Stockholders Agreement").
"Excluded Person" means (i) while the Stockholders Agreement is in effect in
substantially its current form, any person or entity who or which is a party to
the Stockholders Agreement as of the Effective Date and any affiliate of such a
party to the Stockholders Agreement who becomes a party to the Stockholders
Agreement, and (ii) Isaac Perlmutter and Avi Arad or any of their affiliates.
(3) Definition of Perlmutter/Arad Change in Control. For purposes of
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this Agreement, a Perlmutter/Arad Change in Control shall be deemed to have
occurred if, at any time, a majority of the members of the Board shall be
individuals nominated for election as members of the Board, directly or
indirectly, by either or both of Isaac Perlmutter or Avi Arad or any of their
affiliates.
(c) Death. The Executive's employment shall terminate automatically
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upon the Executive's death during the Employment Term.
(d) Without Cause; Voluntary Resignation. At any time during the
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Employment Term, the Company may terminate the Executive's employment without
Cause and
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the Executive may terminate his employment without Good Reason, by written
notice to the other party, effective on the date specified in such notice, which
shall not be more than 30 days after the receipt of notice.
(e) Notice of Termination. Any termination of the employment of the
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Executive (other than by reason of death) shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date. The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means the effective
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date of the termination of the Executive's employment.
5. Obligations of the Company Upon Termination.
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(a) Good Reason; Other Than for Cause; Expiration of Employment Term.
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If during the Employment Term the Company shall terminate the Executive's
employment without Cause or the Executive shall terminate his employment for
Good Reason, or if the employment of the Executive with the Company shall
terminate upon the Scheduled Termination Date:
(i) the Company shall pay to the Executive the aggregate of
the following amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination, (2) any compensation
previously deferred by the Executive (together with any
accrued interest or earnings thereon which the Company has
agreed in writing to pay in connection with that deferral),
(3) any accrued vacation pay and (4) any Annual Bonus for
the fiscal year of the Company terminating prior to the Date
of Termination, in each case to the extent not theretofore
paid and (5) a pro rata portion (based on time) of the
Annual Bonus for the current fiscal year. The amounts
described in (1) through (4) above are referred to as the
"Accrued Obligations" and the amount referred to in (5)
above is referred to as the "Pro Rata Bonus." All Accrued
Obligations shall be paid in
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a lump sum in cash within 30 days of the Date of
Termination. Any Pro Rata Bonus shall be paid as provided in
Section 5(e); and
(B) except with respect to a termination to which
clause (D) below applies, if such termination shall occur
(x) prior to, and other than in contemplation of, the
occurrence of a Third Party Change in Control, (y) on or
after the occurrence of a Third Party Change in Control if
either party hereto has provided the other with written
notice of its election not to extend the Employment Term in
accordance with Section 1 of this Agreement and that notice
was given by the Company prior to the Third Party Change in
Control and that notice was not given by the Company in
contemplation of the Third Party Change in Control or (z) in
contemplation of a Third Party Change in Control if either
party hereto has provided the other with written notice of
its election not to extend the Employment Term in accordance
with Section 1 of this Agreement and that notice was not
given by the Company in contemplation of a Third Party
Change in Control, an amount equal to the product of (I) the
greater of (x) two (2) and (y) the number of years
(including portions of a year based on the number of full
months remaining in the year) from the Date of Termination
through the Scheduled Termination Date (as adjusted pursuant
to Section 1 hereof through the Date of Termination) and
(II) the sum of (1) the highest Annual Base Salary in effect
during the Employment Term and (2) the average of the two
most recent Annual Bonuses paid (treating any Annual Bonus
which is not paid as a result of the Executive's failure to
attain performance goals as having been paid in an amount
equal to zero) to the Executive during the Employment Term
(or if only one Annual Bonus has been paid, the amount of
such Annual Bonus, and if no Annual Bonuses have been paid
(other than as a result of the Executive's failure to attain
performance goals) , sixty percent (60%) of such highest
Annual Base Salary) (such sum hereinafter referred to as the
"Base Compensation"), half of which shall be paid in a lump
sum within 30 days after the Date of Termination, and half
of which shall be paid in equal installments on the
Company's regular salary payment dates through the second
anniversary of the Date of Termination; and
(C) except with respect to a termination to which
clause (D) below applies, if such termination shall occur
upon or following the occurrence of a Third Party Change in
Control or in contemplation of a Third Party Change in
Control, in either event when neither party hereto has
provided the other with written
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notice of its election not to extend the Employment Term in
accordance with Section 1 of this Agreement (other than a
notice given by the Company after or in contemplation of a
Third Party Change in Control), an amount equal to three (3)
times the sum of (1) highest Annual Base Salary in effect
during the Employment Term and (2) half the average of the
two most recent Annual Bonuses paid (treating any Annual
Bonus which is not paid as a result of the Executive's
failure to attain performance goals as having been paid in
an amount equal to zero) to the Executive during the
Employment (or if only one Annual Bonus has been paid, half
the amount of such Annual Bonus, and if no Annual Bonuses
have been paid (other than as a result of the Executive's
failure to attain performance goals), thirty percent (30%)
of such highest Annual Base Salary) , to be paid in a lump
sum within 30 days after the Date of Termination.
(D) if such termination shall be pursuant to Section
4(b)(l)(v) hereof, an amount equal to five (5) times the
Base Compensation
(ii) through the later of the Scheduled Termination Date or
the two-year anniversary of the Date of Termination, the Company shall
continue benefits to the Executive and his family at least equal to
those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(e) of
this Agreement if the Executive's employment had not been terminated,
provided, however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the corresponding
medical and other welfare benefits described herein shall be
terminated. For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the
later of the Scheduled Termination Date or the two-year anniversary of
the Date of Termination and to have retired on the last day of such
period;
(iii) if such termination is not pursuant to Section
4(b)(1)(v) hereof, the Option shall become immediately exercisable in
full subject, in the case of termination in the circumstances
described in Section 5(a)(i)(B) hereof, to Sections 3(c)(i) and (ii)
hereof. If the termination is not pursuant to Section 4(b)(1)(v)
hereof, to the extent that the Option does not become immediately
exercisable in full as a result of Section 3(c)(i) or (ii) hereof, it
shall become exercisable in full as soon as permitted by those
sections despite the termination of employment of the Executive, or at
the Executive's election, the termination
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shall be deemed to be a termination described in Section 4(b)(1)(v)
hereof and the Option shall be canceled. In the former case, the
Option shall remain exercisable until the later of the second
anniversary of the Date of Termination or the third anniversary of the
Effective Date or, if the Option does not become immediately
exercisable in full as a result of Section 3(c)(i) or (ii), the later
of the second anniversary of the date on which it becomes exercisable
or the third anniversary of the Effective Date;
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided to the Executive or which
the Executive is entitled to receive under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies, to the extent payment of any such amounts or benefits are
not already provided for under this Agreement (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
The Executive shall have no duty or obligation to mitigate the amounts or
benefits required to be provided pursuant to this Section 5(a), nor shall any
such amounts or benefits be reduced or offset by any other amounts to which
Executive may become entitled; provided, that (x) if the Executive becomes
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employed by a new employer or self-employed prior to the later of the Scheduled
Termination Date (as adjusted pursuant to Section 1 hereof through the Date of
Termination) or the second anniversary of the Date of Termination, up to one-
half of the amount payable to the Executive pursuant to Section 5(a)(i)(B) shall
be reduced by an amount equal to the amount earned from such employment with
respect to the period through such later date (and the Executive shall be
required to return to the Company, without interest, any amount by which such
payments pursuant to Section 5(a)(i)(B) exceed the amount to which the Executive
is entitled after giving effect to that reduction) and (y) the benefits provided
for in clause (ii) shall be offset to the extent specifically provided therein.
As a condition to the Executive receiving the payments under Section 5(a)(i)(B),
the Executive agrees to permit verification of his employment records and
Federal income tax returns by an independent attorney or accountant, selected by
the Company but reasonably acceptable to the Executive, who agrees to preserve
the confidentiality of the information disclosed by the Executive except to the
extent required to permit the Company to verify the amount received by Executive
from other active employment.
(b) Death; Disability. If the Executive's employment is terminated
-----------------
by reason of the Executive's death or Disability during the Employment Term, the
Option shall become immediately exercisable in full, unless not permitted to
become exercisable by Section 3(c)(i) or (ii) in which case it shall become
immediately exercisable in full as soon as permitted by those sections despite
the termination of employment of by the Executive. The Option shall remain
exercisable until the later of the second anniversary of the Date of Termination
or the third anniversary of the Effective Date or, if the Option does not become
immediately exercisable in full as a result of Section 3(c)(i) or (ii), the
later of the second anniversary of the date on which it becomes exercisable or
the third anniversary of the Effective Date. The Company shall pay the Accrued
Obligations and make timely payment or provision of Other Benefits, and the
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Executive shall not be entitled to any further or additional compensation
pursuant to this Agreement. Accrued Obligations shall be paid to the Executive,
his estate or beneficiary, as applicable, in a lump sum in cash within 30 days
of the Date of Termination. The Company shall also pay the Pro Rata Bonus, if
any, as provided in Section 5(e).
(c) Cause; Other Than for Good Reason. If, during the Employment
---------------------------------
Term, the Executive's employment shall be terminated by the Company for Cause or
by the Executive without Good Reason, (i) to the extent that the Option is
exercisable and has been exercisable for more than one year at the Date of
Termination, it shall remain exercisable until the later of the second
anniversary of the Date of Termination or the third anniversary of the Effective
Date, (ii) to the extent that the Option is exercisable and has been exercisable
for one year or less at the Date of Termination, it shall remain exercisable
until the ninetieth day after the Date of Termination, (iii) to the extent that
the Option is not but would have been exercisable for more than one year at the
Date of Termination but for Section 3(c)(i) or (ii), it shall become exercisable
as soon as permitted by those sections despite the termination of employment of
the Executive and shall remain exercisable until the later of the second
anniversary of the date it becomes exercisable or the third anniversary of the
Effective Date, (iv) to the extent that the Option is not but would have been
exercisable for one year or less at the Date of Termination but for Section
3(c)(i) or (ii), it shall become exercisable as soon as permitted by those
sections despite the termination of employment of by the Executive and shall
remain exercisable until the ninetieth day after the date it becomes
exercisable, (v) except to the extent specified in Section 5(c)(i), (ii), (iii)
or (iv) the Option shall terminate on the Date of Termination, (vi) the Company
shall pay the Accrued Obligations and make timely payment or provision of Other
Benefits, and (vii) the Executive shall not be entitled to any further or
additional compensation pursuant to this Agreement. All Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the Date
of Termination. Subject to Section 7 hereof, if the Executive's employment is
terminated for Cause, nothing in this Agreement shall prevent the Company from
pursuing any available remedies against the Executive.
(d) Golden Parachute Excise Tax. (i) If any payment or benefit
---------------------------
(within the meaning of Section 280G(b)(2) of the Code), to the Executive or for
the Executive's benefit paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise in connection with, or arising out
of, the Executive's employment with the Company or a change in ownership or
effective control of the Company or of a substantial portion of its assets (a
"Parachute Payment" or "Parachute Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown due on the Executive's return, imposed with respect to
such taxes and the Excise Tax), including any Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Parachute Payments.
11
<PAGE>
(ii) An initial determination as to whether a Gross-Up Payment is
required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by the Company's regular outside auditors
(the "Accounting Firm"). The Accounting Firm shall provide its determination
(the "Determination"), together with detailed supporting calculations and
documentation to the Company and the Executive within ten days of the
Termination Date if applicable, or promptly upon request by the Company or by
the Executive (provided the Executive reasonably believes that any of the
Parachute Payments may be subject to the Excise Tax) and if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Parachute Payment or Parachute Payments, it shall furnish the Executive with an
opinion reasonably acceptable to the Executive that no Excise Tax will be
imposed with respect to any such Parachute Payment or Parachute Payments. Within
ten days of the delivery of the Determination to the Executive, the Executive
shall have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 5(d)(ii) shall be paid
by the Company to the Executive within ten days of the receipt of the Accounting
Firm's determination notwithstanding the existence of any Dispute. If there is
no Dispute, the Determination shall be binding, final and conclusive upon the
Company and the Executive subject to the application of Section 5(d)(iii) below.
The Company and the Executive shall resolve any Dispute in accordance with the
terms of this Agreement.
(iii) As a result of the uncertainty in the application of Sections
4999 and 280G of the Code, the parties acknowledge that it is possible that a
Gross-Up Payment (or a portion thereof) will be paid which should not have been
paid (an "Excess Payment") or a Gross-Up Payment (or a portion thereof) which
should have been paid will not have been paid (an "Underpayment"). An
Underpayment shall be deemed to have occurred (i) upon notice (formal or
informal) to the Executive from any governmental taxing authority that the
Executive's tax liability (whether in respect of the Executive's current taxable
year or in respect of any prior taxable year) may be increased by reason of the
imposition of the Excise Tax on a Parachute Payment or Parachute Payments with
respect to which the Company has failed to make a sufficient Gross-Up Payment,
(ii) upon a determination by a court, (iii) by reason of determination by the
Company (which shall include the position taken by the Company, together with
its consolidated group, on its federal income tax return) or (iv) upon the
resolution of the Dispute to the Executive's satisfaction. If an Underpayment
occurs, the Executive shall promptly notify the Company and the Company shall
promptly, but in any event, at least five days prior to the date on which the
applicable government taxing authority has requested payment, pay to the
Executive an additional Gross-Up Payment equal to the amount of the Underpayment
plus any interest and penalties (other than interest and penalties imposed by
reason of the Executive's failure to file timely a tax return or pay taxes shown
due on the Executive's return) imposed on the Underpayment. An Excess Payment
shall be deemed to have occurred upon a "Final Determination" (as hereinafter
defined) that the Excise Tax shall not be imposed upon a Parachute Payment or
Parachute Payments (or portion thereof) with respect to which the Executive had
previously received a Gross-Up Payment. A "Final Determination" shall be deemed
to have occurred when the Executive has received from the applicable government
taxing authority a refund of taxes or other reduction in the Executive's tax
liability by reason of the Excise Payment and upon either (x) the date a
determination is made by, or an agreement is
12
<PAGE>
entered into with, the applicable governmental taxing authority which finally
and conclusively binds the Executive and such taxing authority, or in the event
that a claim is brought before a court of competent jurisdiction, the date upon
which a final determination has been made by such court and either all appeals
have been taken and finally resolved or the time for all appeals has expired or
(y) the statute of limitations with respect to the Executive's applicable tax
return has expired. If an Excess Payment is determined to have been made, the
amount of the Excess Payment shall be treated as a loan by the Company to the
Executive and the Executive shall pay to the Company on demand (but not less
than 10 days after the determination of such Excess Payment and written notice
has been delivered to the Executive) the amount of the Excess Payment plus
interest at an annual rate equal to the Applicable Federal Rate provided for in
Section 1274(d) of the Code from the date the Gross-Up Payment (to which the
Excess Payment relates) was paid to the Executive until the date of repayment to
the Company.
(iv) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Parachute Payment or Parachute Payments, the Company shall pay
to the applicable government taxing authorities as Excise Tax withholding, the
amount of the Excise Tax that the Company has actually withheld from the
Parachute Payment or Parachute Payments or the Gross Up Payment.
(e) Payment of Pro Rata Bonus. The Pro Rata Bonus to which the
-------------------------
Executive is entitled, if any, shall be determined by reference to the
attainment of the Bonus Performance Goals as of the end of the fiscal year in
which termination of employment occurs and shall be paid no later than the end
of the third month of the next fiscal year. One-half of Pro Rata Bonus, if any,
shall be paid in Stock and one-half in cash as provided in Section 3(b).
6. Non-Exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify nor shall anything herein
limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Arbitration; Legal Fees. Except with respect to injunctive relief
-----------------------
under Section 8 of this Agreement, any dispute or controversy arising out of or
relating to this Agreement or the Stock Option Agreement, shall be resolved
exclusively by arbitration in New York City by a panel of three arbitrators who
have been actively engaged in the practice of law for at least the last ten
years in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. Judgment on the award may be entered in
any court having jurisdiction thereof and the provisions of Sections 3.3(a) and
(d) of the Plan and Section 17 of the Stock Option Agreement shall not apply to
any such dispute. The Company shall
13
<PAGE>
reimburse the Executive's reasonable costs and expenses incurred in connection
with any arbitration proceeding pursuant to this Section 7 or any action for
injunctive relief under Section 8 of this Agreement if the Executive is the
substantially prevailing party in that proceeding or action.
8. Protection of Confidential Information; Non-Solicitation of
-----------------------------------------------------------
Employees.
- - ---------
(a) In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, as well as plans for future
developments by the Company, the Executive agrees:
(i) To keep and retain in the strictest confidence all confidential
matters of the Company, including, without limitation, "know how", trade
secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company, learned by the Executive heretofore or hereafter, and
not to disclose them to anyone outside of the Company, either during or after
the Executive's employment with the Company, except in the course of performing
the Executive's duties hereunder or with the Company's express written consent;
and
(ii) To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
(b) For a period of one year after he ceases to be employed by the
Company under this Agreement or otherwise, the Executive, shall not directly or
indirectly, employ or seek to employ any person who is at the Date of
Termination, or was at any time within the six-month period preceding the Date
of Termination, an employee of the Company or any of its subsidiaries or
affiliates or otherwise cause or induce or seek to cause or induce any employee
of the Company or any of its subsidiaries or affiliates to terminate such
employee's employment with the Company or such subsidiary or affiliate for the
employment of another company (included for this purpose the contracting with
any person who was an independent contractor of the Company during such period).
(c) If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Section 8(a) or (b) hereof, the Company
shall have the right to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being acknowledged and
agreed that any such breach or threatened breach will cause irreparable injury
to the Company and that money damages will not provide an adequate remedy to the
Company.
(d) If any of the covenants contained in Section 8(a) or (b) hereof,
or any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the
14
<PAGE>
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
(e) If any of the covenants contained in Section 8(a) or (b) hereof,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties hereto agree that the
court making such determination shall have the power to reduce the duration
and/or area of such provision and, in its reduced form, said provision shall
then be enforceable.
9. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns, but shall not be assignable by the
Company (other than to an entity which at the time of assignment is a wholly-
owned direct or indirect subsidiary of the Company) without the prior written
consent of the Executive.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no succession had
taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. Insurance and Indemnification. To the fullest extent permitted
-----------------------------
by applicable law, the Executive shall be indemnified and held harmless for any
action or failure to act in his capacity as a director, officer or employee of
the Company. In furtherance of the foregoing and not by way of limitation, if
Executive is a party or is threatened to be made a party to any suit because he
is a director, officer or employee of the Company, he shall be indemnified
against expenses, including reasonable attorney's fees, judgments, fines and
amounts paid in settlement if he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interest of the Company, and with
respect to any criminal action or proceeding, he had no reasonable cause to
believe his conduct was unlawful. Indemnification under this Section 10 shall
be in addition to any other indemnification by the Company of its officers and
directors. Expenses incurred by Executive in defending an action, suit or
proceeding for which he claims the right to be indemnified pursuant to this
Section 10 shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of Executive to repay such amount in the event that it shall ultimately be
determined that he is not entitled to indemnification by the Company. Such
undertaking shall be accepted
15
<PAGE>
without reference to the financial ability of Executive to make repayment. In
addition, the Company shall use its best efforts to obtain and maintain a
directors' and officers' liability insurance policy at a reasonable cost
providing insurance coverage for its directors and officers generally with
respect to claims made against its officers and directors and the Executive will
be entitled to the protection of any such liability insurance policy which the
Company maintains. The obligations of this Section 10 shall survive the
termination of the Employment Term and shall apply notwithstanding any provision
to the contrary in Section 5 herein.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives. This Agreement
constitutes the entire understanding of the parties hereto with respect to the
employment of the Executive by the Company, and supersedes any and all prior
understandings, agreements or commitments related thereto.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
Mr. Eric Ellenbogen
1 W. 72nd Street
New York, New York
With a copy to:
--------------
Arthur H. Kohn
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
If to the Company:
-----------------
Marvel Enterprises, Inc.
685 Third Avenue
New York, New York 10017
Attention: Board of Directors
16
<PAGE>
With a copy to:
--------------
John Turitzin
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
ERIC ELLENBOGEN
/s/ Eric Ellenbogen
---------------------------------------------------------
MARVEL ENTERPRISES, INC.
By: /s/ Morton E. Handel
------------------------------------------------------
Name: Morton E. Handel
Title: Chairman of the Board
17
<PAGE>
EXHIBIT 10.18
TOY BIZ, INC.
685 Third Avenue
New York, NY 10017
August 27, 1997
Mr. William H. Hardie, III
c/o Fleer/Sky Box International, Inc.
1120 Rt. 73, Suite 300
Mt. Laurel, NJ 08054
Dear Tuck:
It is with great pleasure that I extend our offer to you to join Toy Biz as
Executive Vice President, Business Affairs.
The following confirms our offer with regard to your employment.
STARTING DATE: Effective September 1, 1997 or as soon thereafter as
practicable.
TITLE: Executive Vice President, Business Affairs.
SALARY: $250,000 per year. Your performance will be reviewed
annually for merit raise consideration.
BONUS: You will be guaranteed a bonus of $25,000 per year. You
will remain eligible to participate in the bonus program
established for all Toy Biz senior executive officers.
RELOCATION You will be provided with customary relocation benefits
ASSISTANCE: under the Company's standard policies.
BENEFITS: You will participate in all benefit programs available to
Toy Biz employees, a copy of such present programs will
be provided to you.
VACATION: You will receive three (3) weeks paid vacation annually.
STOCK OPTIONS: You will receive an award of shares in an amount to be
agreed, in accordance with existing Company policies.
<PAGE>
WILLIAM H. HARDIE, III August 27, 1997
TERM: This agreement will be for a period of three (3) years.
The Company retains the right to terminate this agreement
in the case of your gross negligence, willful misconduct
or acts of moral turpitude.
CAR: You will be entitled to a car allowance of $700 per
month.
SEVERANCE: The company may terminate employment under this contract
at any time. If the contract is terminated, the employee
will be entitled to twelve (12) months of salary
continuation.
If this letter accurately summarizes your understanding of our
agreement, please so signify by executing and returning a copy of this letter to
me whereupon it will become a binding agreement among you and the Company.
Very truly yours,
/s/ Joseph M. Ahearn
Joseph M. Ahearn
President and
Chief Executive Officer
Agreed and accepted:
/s/ William H. Hardie, III
H. William Hardie, III
Date:
-2-
<PAGE>
EXHIBIT 10.19
MARVEL ENTERPRISES, INC.
387 PARK AVENUE SOUTH
NEW YORK, NY 10016
February 4, 1999
Mr. William H. Hardie, III
3206B Ramsbury Ct.
Mt. Laurel, NJ 08054
Re: Employment Letter dated August 27, 1997
Dear Tuck:
I write to memorialize our discussions surrounding your employment by
Marvel Enterprises, Inc.
As we have discussed, the Company has determined to seek candidates
for the positions you currently hold, EVP-Business Affairs and General Counsel.
In order to ensure that the process of identifying and selecting your successor
does not unnecessarily disrupt the activities of the Company and to further
ensure that a smooth transition of your responsibilities is achieved, this
letter will serve as the Company's agreement to pay you upon termination of your
employment at any time after March 1, 1999 (for any reason other than cause) (i)
as a lump sum, $130,000, which represents an amount equal to one-half of your
annual current base salary and (ii) $130,000, which represents the balance of
your annual current base salary, over the six month period immediately following
your termination of employment in accordance with the Company's standard payroll
practices. You acknowledge and agree that this arrangement is in substitution
for, and in full satisfaction of, the 1-year severance benefit provided for in
your Employment Letter identified above as well as any severance benefit
available under the Company's current severance policy.
Further, you acknowledge that you are forfeiting any and all stock
options granted to you upon termination of your employment. Finally, you agree
to provide the Company with no less than 5 hours of consulting services per week
in connection with the transition of your activities for a period of six months
following termination of your employment. You agree that such services are to
be provided either at the Company's offices in New York or by telephone as the
Company shall reasonably request; provided, however, that the Company shall
reimburse for your reasonable out-of-pocket travel expenses.
<PAGE>
The Company and you agree to execute mutually acceptable general
releases, except with respect to the obligations set forth herein,
simultaneously with the payment of the amounts set forth in clause (i) above.
If the foregoing is satisfactory, please so indicate by executing and
signing in the space provided below whereupon this letter will represent the
binding agreement of both parties.
Sincerely,
/s/ Eric Ellenbogen
Eric Ellenbogen
President and CEO
ACCEPTED AND AGREED:
/s/ William H. Hardie, III
- - --------------------------
William H. Hardie, III
Date:
-2-
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
- - ------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Adespan U.K. Ltd.* (United Kingdom)
2. Compania de Juguetes Mexicanos, S.A. de C.V. (99%) (Mexico)
3. MEI Holding Company F Corp. (Delaware)
4. MEI Holding Company S Corp. (Delaware)
5. MRV, Inc. (Delaware)
6. Marvel Characters, Inc. (Delaware)
7. Marvel Entertainment Group, Inc. (Delaware)
8. Marvel Restaurant Venture Corp. (Delaware)
9. Panini Brasil Ltda* (Brazil)
10. Panini Canada Ltd.* (Canada)
11. Panini Espana S.A.* (99.95%) (Spain)
12. Panini France S.A.* (France)
13. Panini Ireland Ltd.* (Ireland)
14. Panini Nederland BV* (Netherlands)
15. Panini Portugal Editores Lda* (Portugal)
16. Panini S.p.A.* (Italy)
17. Panini U.K. Ltd.* (United Kingdom)
18. Panini Verlags GmbH* (Germany)
19. Spiderman Merchandising L.P. (50%) (Partnership)
20. The Emerald Foundation* (Ireland)
21. Toy Biz International Limited (99%) (Hong Kong)
22. UMRV Co. (30%) (Partnership)
</TABLE>
* These companies are part of the Panini business, which the Company has decided
to dispose of.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-effective Amendment No. 1
to the Registration Statement (Form S-3 No. 333-68019) and related Prospectus of
Marvel Enterprises, Inc. (formerly Toy Biz, Inc.) 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 and schedule of Marvel Enterprises, Inc.
included in this Annual Report (Form 10-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
New York, New York
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARVEL
ENTERPRISES, INC.'S CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF
INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000933730
<NAME> MARVEL ENTERPRISES, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 43,691
<SECURITIES> 0
<RECEIVABLES> 75,235
<ALLOWANCES> 3,608
<INVENTORY> 32,598
<CURRENT-ASSETS> 172,584
<PP&E> 38,720
<DEPRECIATION> 23,172
<TOTAL-ASSETS> 689,904
<CURRENT-LIABILITIES> 305,976
<BONDS> 0
172,380
0
<COMMON> 408
<OTHER-SE> 183,216
<TOTAL-LIABILITY-AND-EQUITY> 689,904
<SALES> 232,076
<TOTAL-REVENUES> 232,076
<CGS> 127,978
<TOTAL-COSTS> 127,978
<OTHER-EXPENSES> 123,558
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,440
<INCOME-PRETAX> (28,224)
<INCOME-TAX> 4,386
<INCOME-CONTINUING> (32,610)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,610)
<EPS-PRIMARY> ($1.23)
<EPS-DILUTED> ($1.23)
</TABLE>
