Commitment Letter - Toy Biz Inc., Zib Inc. and Dickstein Partners Inc.
November 19, 1997
Toy Biz, Inc.
685 Third Avenue
New York, New York 10017
Attention: Joseph M. Ahearn
President and Chief Executive Officer
Purchase of 8% Cumulative Convertible Preferred Stock
Gentlemen:
Each of Zib Inc. ("Zib") and Dickstein Partners, Inc.
("Dickstein," and together with Zib, the "New Investors") is pleased to advise
Toy Biz, Inc. ("TB") of its several commitment to purchase the number of shares
of the 8% Cumulative Convertible Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of Marvel Entertainment Group, Inc. ("Marvel"; Marvel or
such other entity as is the issuer of the Preferred Stock pursuant to the Plan
of Reorganization (as defined below) being sometimes hereinafter referred to as
the "Company"), as is set forth opposite the signature of such New Investor on
the signature page of this commitment letter (together with the Term Sheet
referred to below, the "Commitment Letter"), subject to the terms and conditions
set forth herein and in the Summary of Principal Terms and Conditions (the "Term
Sheet") annexed hereto as Exhibit A. The terms and provisions with respect to
the preferences, powers and other rights of the Preferred Stock are set forth in
the Company's Restated Certificate of Incorporation (the "Charter") annexed
hereto as Exhibit B. Capitalized terms used but not defined herein or in the
Term Sheet shall have the meanings ascribed to them in the draft Joint Plan of
Reorganization Proposed by the Secured Lenders and TB attached to the Master
Agreement (as defined in the Term Sheet) as Exhibit 2 (the "Plan of
Reorganization").
In consideration of the New Investors having committed to
purchase shares of Preferred Stock pursuant to this Commitment Letter, TB hereby
agrees that:
(1) if at any time prior to September 21, 1999 TB and Marvel
consummate a transaction (other than the Merger as defined in and
contemplated by the Master Agreement, including the investment by the
New Investors contemplated by this Commitment Letter (the "Merger")),
or if at any time after September 21, 1999 TB and
646743.14
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Joseph M. Ahearn
November 19, 1997
Page 2
Marvel consummate a transaction that was announced prior to September
21, 1999 (other than the Merger), pursuant to which TB and Marvel (or
substantially all of their respective assets) are to be or are,
directly or indirectly, together sold to one or more third parties
(e.g., by merger) or otherwise combined or Marvel is to acquire or
acquires, directly or indirectly, TB (or substantially all of its
respective assets), or TB is to acquire or acquires, directly or
indirectly, Marvel (or substantially all of its respective assets), and
in any such transaction (an "Alternative Transaction"), the holders of
the outstanding common stock, par value $.01 per share, of TB
(collectively, together with any securities of TB issued in exchange
for the aforesaid common stock pursuant to any recapitalization or
similar transaction, the "TB Shares") are to receive or receive
consideration (in cash or fair market value of any non-cash
consideration) per TB Share in excess of $9.625, (such amount to be
appropriately adjusted for any stock dividend, stock split, reverse
stock split or other recapitalization of the TB Shares after the date
hereof (a"TB Recapitalization")) (the "Excess Proceeds"), then
Dickstein shall be entitled to be paid, not later than one (1) business
day following the consummation of the Alternative Transaction, an
alternative transaction fee (the "Alternative Transaction Fee") by TB
(or any successor entity) equal to the product of (a) the lesser of
$3.00 (appropriately adjusted for any TB Recapitalization) and the
Excess Proceeds, (b) 10.39 (appropriately adjusted for any TB
Recapitalization) and (c) the number of shares of Preferred Stock to be
purchased by Dickstein; provided, however, that if TB is the surviving
entity in any combination or other transaction referred to in this
clause (1), the per share consideration deemed to be received by the
holders of the TB Shares shall be the price per share of the TB Shares
immediately following consummation of such combination or other
transaction; provided, further, that any Alternative Transaction Fee
that becomes payable in respect of any Alternative Transaction
announced or consummated prior to the later of September 21, 1998 and
the termination of the Master Agreement will not be in excess of
$8,000,000 and any Alternative Transaction Fee which becomes payable in
respect of an Alternative Transaction which is announced and
consummated after the later of September 21, 1998 and the termination
of the Master Agreement will not be in excess of $4,000,000 (unless the
termination is pursuant to Section 7.1 (d) or (e) of the Master
Agreement, in which case the Alternative Transaction Fee will not be in
excess of $8,000,000); and provided, further, that no Alternative
Transaction Fee shall be payable by Toy Biz in respect of an
Alternative Transaction which occurs after a Final Change in Control;
provided, further that the Alternative Transaction Fee shall not be
payable in the event that the Break-up Fee is paid to Dickstein under
the Plan or the Substitute Fee has been paid to Dickstein. The term
"Final Change in Control" means a Change of Control (as defined in the
Master Agreement) that is final and not subject to appeal or which
results in a change in the identity of a majority of the directors of
TB. The term "Substitute Fee" means the Substitute Fee referred to in
the letter agreement from Isaac Perlmutter,
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Joseph M. Ahearn
November 19, 1997
Page 3
Avi Arad and Joseph Ahearn to Dickstein dated the same date as this
Commitment Letter.
(2) TB will not at any time prior to the termination of the
Master Agreement consent to any material change in the Plan of
Reorganization or withdraw or otherwise terminate the Plan of
Reorganization for the purpose of submitting an alternative plan of
reorganization or consummating an alternative transaction in the
bankruptcy case of Marvel or any of its affiliated debtors; without the
prior written consent of the New Investors having committed to purchase
80% of the shares of Preferred Stock to be purchased by the New
Investors; provided, however, (a) modifications to the Plan of
Reorganization which merely increase the amount of consideration
payable to claimants in the Marvel bankruptcy by an aggregate amount of
$20 million or less and effect no other material changes do not require
the consent of the New Investors, and (b) modifications to the Plan of
Reorganization which merely increase the amount of consideration
payable to claimants in the Marvel bankruptcy by an aggregate amount of
more than $20 million and effect no other material changes do not
require the consent of the New Investors if an appropriate adjustment
is made in the purchase price or terms of the Preferred Stock so that
the value of the Preferred Stock is not reduced by more than the amount
it would have been reduced had the payment to that class been equal to
$20 million;
(3) TB will not at any time prior to the termination of the
Master Agreement implement the transactions contemplated by the Master
Agreement or any similar transactions without permitting the New
Investors to purchase the Preferred Stock on the terms provided in this
Commitment Letter.
Dickstein shall be reimbursed (the "Expense Reimbursement") by
TB or any successor entity in an amount not to exceed $200,000 for all of the
professional fees, costs and expenses incurred by Dickstein solely in connection
with the negotiation of this Commitment Letter and related agreements and
documentation; provided, however, that Dickstein shall not be reimbursed for any
other professional fees, costs or expenses relating to the Reorganization Cases
including, without limitation, any litigation relating to the Reorganization
Cases, the Plan of Reorganization, this Commitment Letter or Toy Biz. Dickstein
shall not be entitled to any Expense Reimbursement if there is a Final Change in
Control.
TB may reduce the aggregate number of shares of Preferred
Stock to be purchased by the New Investors with the consent of New Investors
having committed to purchase 80% of the shares of Preferred Stock to be
purchased by the New Investors, other than Perlmutter, Arad and any of their
affiliates. In the event of such reduction, the shares of Preferred Stock to be
purchased by the New Investors shall be reduced pro rata.
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Joseph M. Ahearn
November 19, 1997
Page 4
This Commitment Letter (and the New Investors' commitments
hereunder) shall not be assignable by you nor shall it be assignable, in whole
or in part, by any New Investor without the consent of you and New Investors
having committed to purchase 80% of the shares of Preferred Stock to be
purchased by the New Investors, provided that no such consent shall be required
for (i) assignments by Zib of its rights under this Commitment Letter, (ii)
assignments by any New Investor of it rights under this Commitment Letter to any
of its affiliates and (iii) assignments by Dickstein of its rights under this
letter to an investment fund controlled or managed by it. Any assignee shall be
required to deliver to TB, Zib and Dickstein its written agreement to be bound
by this Commitment Letter and, upon agreeing to be so bound, shall thereupon be
deemed to have become a New Investor. No assignment, however, shall relieve the
assignor of its obligations under this Commitment Letter. Any such purported
assignment without such consents shall be null and void. This Commitment Letter
is intended to be solely for the benefit of the parties hereto and is not
intended to confer any benefits upon, or create any rights in favor of, any
person other than the parties hereto. This Commitment Letter may not be amended
or waived except by an instrument in writing signed by you and the New
Investors. This Commitment Letter may be executed in any number of counterparts,
each of which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this
Commitment Letter by facsimile transmission shall be effective as delivery of a
manually executed counterpart hereof.
This Commitment Letter constitutes a binding and enforceable
obligation of the New Investors and TB and their respective successors and
permitted assigns; provided, however, that each of the parties hereto
acknowledges that TB is engaged in litigation with Marvel concerning the status
of TB's class B common stock and its stockholders' agreement and this
representation is qualified by such litigation. This Commitment Letter is the
only agreement that has been entered into among us with respect to the matters
contained herein and sets forth the entire understanding of the parties with
respect thereto. This Commitment Letter shall be governed by, and construed in
accordance with, the laws of the State of New York.
If any provision of this Commitment Letter is held to be
illegal, invalid or unenforceable under any applicable law, then such
contravention or invalidity shall not invalidate the entire Commitment Letter.
Such provision shall be deemed to be modified to the extent necessary to render
it legal, valid and enforceable. Without limiting the generality of the
foregoing, if any fee payable by TB pursuant to this Commitment Letter is held
to be in excess of the maximum amount thereof permissible under applicable law,
the amount of such fee, shall be reduced to such maximum amount.
Upon the earlier of (x) the termination of the Master
Agreement, (y) a Final Change in Control and (z) the delivery by Dickstein or
Zib of a written notice terminating this
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Joseph M. Ahearn
November 19, 1997
Page 5
Agreement following such time as persons designated by Marvel and not approved
by Dickstein or Zib, as the case may be, become a majority of the directors of
TB (a "Marvel Board Change"), this Commitment Letter and the obligations of the
parties hereunder shall terminate; provided, however, that if a Final Change in
Control has not occurred and this Commitment Letter is terminated under clause
(x) or (z) above, the obligations of TB under clause (1) of the second paragraph
hereof and its obligations to pay the Expense Reimbursement shall survive
termination of this Commitment Letter. In no event shall TB have any obligations
under this Commitment Letter (including any obligations under clause (1) of the
second paragraph hereof) after the occurrence of a Final Change in Control,
whether that Final Change in Control occurs before or after the termination of
this Commitment Letter.
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Joseph M. Ahearn
November 19, 1997
Page 6
If the foregoing correctly sets forth our agreement, please
indicate your acceptance of the terms hereof and of the Term Sheet by returning
to us executed counterparts hereof.
The New Investors are pleased to have been given the
opportunity to invest in the Company and we look forward to working with you to
complete this transaction.
Very truly yours, Number of Shares of
Preferred Stock subscribed
to:
ZIB, INC.
By: 600,000
---------------- -------
Isaac Perlmutter
President
DICKSTEIN PARTNERS INC.
By: 300,000
-------------- -------
Name:
Title:
ACCEPTED AND AGREED AS OF THE
19TH DAY OF NOVEMBER, 1997:
Toy Biz, Inc.
By:
---------------------
Joseph M. Ahearn
President
GUARANTEE
The undersigned hereby unconditionally guarantees the full compliance and
performance by Zib Inc. with its obligations under this Commitment Letter. This
guarantee is a guarantee of payment and not of collection.
----------------------------
Isaac Perlmutter
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Exhibit A
Summary of Principal Terms and Conditions
Issuer: The Company.
Security: Preferred Stock of the Company. Alternatively, the Company
may issue New Convertible Notes as provided in the Plan of
Reorganization. If New Convertible Notes are issued, all
references to Preferred Stock in this Commitment Letter will be
deemed to be modified, to the extent applicable, to refer to such
New Convertible Notes.
Use of Proceeds: Provide funding for a portion of the distributions and other
payments required to be made on the Consummation Date under
and in connection with the Plan of Reorganization.
Amount of
Investment: The number of shares of Preferred
Stock subscribed to by each New Investor at a price
per share of $100, for a total investment by the New
Investors of $90,000,000, subject to reduction as
provided below.
Inspection
Rights: The New Investors may inspect the Company's properties, books
and other records at reasonable times and upon reasonable notice. The
New Investors will also be provided with the same information
(financial or otherwise) provided to other investors as well as such
other material information relevant to the Company's business and the
New Investors' investment as it may reasonably request from to time,
including access to the Company's management and auditors.
Conditions: The following conditions shall be satisfied
(or waived by New Investors having committed
to purchase 80% of the shares of Preferred
Stock to be purchased by New Investors) on
or prior to the purchase of the Preferred
Stock by the New Investors:
1. Definitive Documentation:
Negotiation of definitive equity
investment documentation including,
without limitation, a Stock Purchase
Agreement containing customary
representations and warranties,
covenants (including payment of the
Alternative Transaction Fee or the
Break-Up Fee and expense
reimbursement) and conditions (other
than a material adverse change
condition) for investments of this
type, a
A-1
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Registration Rights Agreement
between the Company and the New
Investors, and a Stockholders
Agreement between the Company, the
New Investors, Arad and Perlmutter
customary for transactions of this
type, which Stockholders Agreement
shall provide for appropriate Board
representation for the New
Investors.
2. HSR Act: The waiting period required by the HSR Act shall have
expired or been terminated by the FTC and the
Department of Justice Antitrust Division, or, it shall have
been determined that the provisions of the HSR Act are
inapplicable to the purchase by the New Investors of the
Preferred Stock.
3. Confirmation Order: A Confirmation Order
reasonably acceptable to the New Investors
confirming the Plan of Reorganization shall
have been issued by the Bankruptcy Court.
4. Plan of
Reorganization: The Plan of Reorganization confirmed
by the Bankruptcy Court shall contain no material
changes, including, without limitation, changes
relating to equity dilution, from Exhibit 2 to the
Amended and Restated Master Agreement, dated as of
November 19, 1997, by and among TB and the secured
creditors of the Company and certain of the
Company's direct and indirect subsidiaries who
become parties to the Amended and Restated Master
Agreement (the "Master Agreement").
5. Financing: The Company shall have obtained the Term Loan Facility
and the Working Capital Facility on terms and conditions
reasonably acceptable to the New Investors and the New
Investors shall have purchased 900,000 shares of
Preferred Stock as contemplated herein, in each case on or
before the Consummation Date. The Term Loan Facility
and the Working Capital Facility shall not, in the
aggregate, have an effective interest rate of more than
thirteen percent (13%) per annum.
6. Consummation
of Merger,
etc.: The Merger and the other transactions
contemplated by the Master Agreement and the Plan of
Reorganization shall have been consummated upon
substantially the same terms set forth therein.
A-2
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In addition, the following condition shall
be satisfied or waived by Dickstein on or
prior to the purchase of the Preferred Stock
by Dickstein:
DIP and Administrative
Expense Claims: The sum of the allowed DIP Claims and the
allowed Administrative Expense Claims shall not exceed, or
reasonably be expected to exceed, $147,000,000, unless one
or more other New Investors have transferred to Dickstein,
for no additional consideration, an aggregate number of
additional shares of Preferred Stock equal to:
300,000 - 300,000
--------------------------------------------
1 - [(D + A - 127,000,000) x .002/1,000,000]
where:
D = the amount of allowed DIP Claims
A = the amount of allowed
Administrative Expense
Claims (including for this
purpose all of the
professional fees, costs
and expenses of
professionals engaged by
Chase pursuant to Section
4.2(b)(i)(A) of the Plan of
Reorganization)
A-3
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Because the parties recognize that
the amount of the allowed
Administrative Expense Claims is
unlikely to have been determined by
the Consummation Date, the New
Investors proposing to transfer to
Dickstein such additional shares of
Preferred Stock and Dickstein shall
negotiate in good faith to agree
upon an estimate of the maximum
amount of the Administrative Expense
Claims reasonably likely to be
allowed and such New Investors shall
place in escrow on the Consummation
Date the number of shares of
Preferred Stock, if any, that would
be required to be transferred to
Dickstein if that estimate was
realized. The escrow arrangements
shall provide for the distribution
of the escrowed shares as the
aggregate of the allowed DIP Claims
and the allowed Administrative
Expense Claims become determined.
The amounts set forth above will be
appropriately adjusted if Marvel or
any of its affiliated debtors sells
assets outside of the ordinary
course of business and uses the
proceeds thereof to repay DIP
Claims.
A-4
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Exhibit B
Restated Certificate of Incorporation of
Marvel Entertainment Group, Inc.