Marvel Entertainment Group

SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q Quarterly report pursuant to sections 13 or 15(d)

Filing Date: 1998-08-19 | Period of Report: 1998-06-30 SEC Accession No. 0000950136-98-001530

(HTML Version on secdatabase.com)

FILER MARVEL ENTERTAINMENT GROUP INC Mailing Address Business Address 387 PARK AVENUE SOUTH 387 PARK AVE S CIK:874808| IRS No.: 943024816 | State of Incorp.:DE | Fiscal Year End: 1231 NEW YORK NY 10016 NEW YORK NY 10016 Type: 10-Q | Act: 34 | File No.: 001-10779 | Film No.: 98694485 2126960808 SIC: 2721 Periodicals: publishing or publishing & printing

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to ______

Commission file number 1-10779

MARVEL ENTERTAINMENT GROUP, INC.

------(Exact name of registrant as specified in its charter)

DELAWARE 94-3024816

------(State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)

387 PARK AVENUE SOUTH, NEW YORK, NY 10016

------(Address of principal executive offices) (Zip Code)

212-696-0808

------(Registrant's telephone number, including area code)

------(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___

MARVEL ENTERTAINMENT GROUP, INC. INDEX TO CONTENTS OF THE SECOND QUARTER 1998 FORM 10-Q

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document MARVEL ENTERTAINMENT GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (SEE NOTE 1 OF NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS) (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

MARVEL ENTERTAINMENT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (SEE NOTE 1 OF NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS) (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

MARVEL ENTERTAINMENT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (SEE NOTE 1 OF NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS) (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

MARVEL ENTERTAINMENT GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (SEE NOTE 1 OF NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS) (UNAUDITED)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

MARVEL ENTERTAINMENT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION

Marvel Entertainment Group, Inc. ("Marvel" and together with its subsidiaries, the "Company") was incorporated on December 2, 1986, in the State of Delaware. On December 27, 1996, Marvel along with eight of its operating and inactive subsidiaries (together with Marvel, the "Debtor Companies") commenced cases (the "Marvel Cases") under chapter 11, Title 11 of the United States Code (the "Bankruptcy Code") by filing voluntary petitions for relief in the United States Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). In November 1997, the United States District Court for the District of Delaware (the "District Court") withdrew the order referring the Marvel Cases to the Bankruptcy Court. As more fully described in Note 2, on July 30, 1998 Marvel, Toy Biz, the secured creditors, the official committee of unsecured creditors, the official committee of equity holders and other interested parties reached a global settlement and on July 31, 1998, the District Court approved the settlement and confirmed the Fourth Amended Plan of Reorganization (the "Toy Biz Plan"). The Company anticipates that the consummation of the Toy Biz Plan should occur on or about September 30, 1998, subject to certain conditions being satisfied. There can be no assurance however, that the consummation of the Toy Biz Plan will occur as anticipated.

The accompanying unaudited condensed consolidated financial statements include the accounts of Marvel Entertainment Group, Inc. and its subsidiaries. The unaudited condensed consolidated financial statements of the Company include the consolidation of Toy Biz, Inc. and its subsidiaries (collectively "Toy Biz") since its initial public offering on March 2, 1995 (the "Toy Biz IPO") through June 30, 1997. Since July 1, 1997, due to the dispute over Marvel's ability to control or influence Toy Biz and because Toy Biz ceased reporting its financial information to the Company, the Company deconsolidated Toy Biz (see Note 2). The Company's operations currently consist of (i) the publication and sale of comic books and children's magazines, (ii) the manufacture and distribution of sports and entertainment trading cards and children's activity sticker collections, (iii) licensing of the various characters owned by the Company for consumer products, media and advertising-promotion and (iv) the manufacture and distribution of adhesive paper products. In the opinion of management, all adjustments and intercompany eliminations necessary for a fair presentation of the results of operations, financial position and cash flows have been made and were of a normal recurring nature. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements on Marvel's Form 10-K and amendment thereto for the year ended December 31, 1997. Certain prior year amounts have been reclassified to conform to current year presentation.

The Condensed Consolidated Balance Sheet, as of June 30, 1998 reflects Marvel's investment of approximately 7.4 million shares of Toy Biz common stock at the historical cost adjusted for the equity method of accounting through the date of deconsolidation. As of June 30, 1998 the Company's investment in Toy Biz was $33.0. Had the Company reinstated accounting for its investment in Toy Biz on the equity method, the carrying value would have been $27.3 at June 30, 1998 based on Toy Biz's published results through June 30, 1998.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. Continuation of the Company as a going concern is contingent upon, among other things, the consummation of the Toy Biz Plan (as defined below), the Company's ability to comply with its debtor-in-possession financing agreement, resolution of various litigation against the Company, the Company's ability to make its information systems Year 2000 compliant, the Company's ability to generate sufficient cash from operations and obtain financing sources to meet its future obligations and the Company's ability to retain key employees and customers. In addition, the Company has experienced recurring operating losses, working capital deficiencies, negative operating cash flows and is currently in default under substantially all of its debt agreements. In the absence of the consummation of the Toy Biz Plan or any other plan of reorganization, these matters raise substantial doubt about the Company's ability to continue as a going concern.

If the Toy Biz Plan or any other plan of reorganization is consummated, the consolidated results of operations and the financial position of the Company may be materially affected.

2. CHAPTER 11 REORGANIZATION

(Refer to the Notes to Consolidated Financial Statements included in Marvel's Form 10-K and amendments thereto for more information.)

Operating Companies

On December 27, 1996, Marvel along with eight of its operating and inactive subsidiaries, Fleer Corp. ("Fleer"), SkyBox International, Inc. ("SkyBox"), Marvel Characters, Inc., Heroes World Distribution, Inc. ("Heroes World"), The Asher Candy Company, Malibu Comics Entertainment, Inc. ("Malibu"), Frank H. Fleer Corp. and Marvel Direct Marketing Inc. (together with Marvel, the "Debtor Companies") commenced the Marvel Cases in the Bankruptcy Court. Panini S.p.A. ("Panini") and Marvel Restaurant Venture Corp. ("Marvel Restaurants") (a general partner in the joint venture developing Marvel Mania restaurants), which were then active subsidiaries of Marvel, and Toy Biz, as well as certain other inactive subsidiaries, did not file petitions under the Bankruptcy Code.

As a result of the several failed attempts at a plan of reorganization, the acrimony among the parties involved, the conflicts of interest between the parties and the significant amount of professional fees and other bankruptcy related costs incurred by the Company, on December 22, 1997, John J. Gibbons was appointed as Chapter 11 Trustee (the "Chapter 11 Trustee") for the Company. The order appointing the Chapter 11 Trustee was appealed by certain creditors of the Company and was affirmed on March 25, 1998 by the United States Court of Appeals for the Third Circuit ("Court of Appeals").

The Chapter 11 Trustee has all of the powers of the Board of Directors and management of the Debtor Companies to operate and manage the Debtor Companies, but generally may not engage in transactions outside the ordinary course of business without approval, after notice and hearing of the District Court. Since the appointment of the Chapter 11 Trustee, the Board of Directors of Marvel no longer controls the business of Marvel and as a result, the Board of Directors resigned during 1998.

Plans of Reorganization

On October 8, 1997 Toy Biz and the senior secured lenders of the Debtor Companies proposed an unsolicited merger plan to purchase Marvel. On July 30, 1998 Toy Biz, Marvel, the senior secured creditors of the Debtor Companies, the official committee of unsecured creditors, the official committee of equity holders of Marvel and other interested parties reached a global settlement, and on July 31, 1998 the District Court approved the settlement and confirmed the Toy Biz Plan. The Toy Biz Plan contemplates the combination of the Company with a wholly owned subsidiary of Toy Biz. Following this combination, Toy Biz intends to change its name ("NEWCO"). In connection with the Toy Biz Plan, the Toy Biz stockholders, other than the Company, would receive approximately 40% of the outstanding common stock of NEWCO (assuming the conversion of all preferred stock to be issued by NEWCO pursuant to the Toy Biz Plan but not assuming any exercise of warrants to be issued pursuant to the Toy Biz Plan) and the senior secured lenders would receive a combination of cash and common and preferred securities issued by NEWCO which (under the same assumptions) would represent approximately 42% of the common stock of NEWCO. Investors, including Mr. Perlmutter, the controlling shareholder of Toy Biz, would purchase securities that (under the same assumptions) would represent approximately 18% of the common stock of NEWCO. Under the Toy Biz Plan, the unsecured creditors will receive (i) up to $8.0 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 NEWCO 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 be entitled to receive distributions from any future recovery on certain litigation. Finally, the Toy Biz Plan provides that three series of warrants ("the Stockholder Warrants") will be distributed to holders of shares of Marvel common stock, to holders of certain class securities litigation claims arising in connection with the purchase and sale of Marvel common stock and to La Salle National Bank. The Stockholder Warrants consist of (a) three-year warrants to purchase 4.0 million shares of common stock in NEWCO at $12.00 per share, (b) six-month warrants to purchase 3.0 million shares of preferred stock to be issued by NEWCO for $10.65 per share and (c) four-year warrants to purchase 7.0 million shares of common stock in NEWCO 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 are also

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document MARVEL ENTERTAINMENT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) provided for by the Toy Biz Plan in connection with settling the disputes arising out of the bankruptcy proceedings. The Toy Biz Plan was proposed by in excess of two-thirds in amount of senior secured lenders and is supported by the Chapter 11 Trustee, the unsecured creditors committee and the equity committee. The Toy Biz Plan was confirmed by the District Court on July 31, 1998. Consummation of the Toy Biz Plan is subject to a number of conditions including approval of the Toy Biz stockholders. Toy Biz has called a meeting of its stockholders for September 11, 1998 for the purpose, among other things, of considering and voting upon approval of the transactions contemplated by the Toy Biz Plan.

Consummation of the Toy Biz Plan will provide for the restructuring of the Company's existing liabilities and will result in the elimination of substantially all of the Company's existing domestic senior debt obligations and certain other pre-petition obligations of the Debtor Companies. In addition to the Toy Biz securities issuance previously discussed, the Toy Biz Plan provides for (i) the delivery of approximately $231.8 in cash to the fixed senior secured lenders and up to $8.0 in cash to the unsecured creditors; (ii) the creation of two litigation trusts for the benefit of NEWCO, the unsecured creditors, the fixed senior secured lenders and the equity holders; (iii) the payment in cash of all administration expense claims incurred in connection with Marvel Cases, (in the event that the aggregate amount of such administrative claims is in excess of $35.0, the receipt by NEWCO of cash in an amount equal to such excess from an affiliate of Mr. Perlmutter in exchange for a note from NEWCO for an equal amount) and; (iv) subject to certain limitations, a guaranty from NEWCO to the senior secured lenders of up to $40.0 of deficiency in respect of restructured Panini debt obligations. In addition, the Toy Biz Plan provides for the payment by NEWCO of $3.5 to certain claimants in the Marvel Cases in settlement of disputes.

As part of the Toy Biz Plan two litigation trusts will be formed on the consummation date. The purpose of the Avoidance Litigation Trust (the "Avoidance Trust") is to pursue bankruptcy avoidance claims. The purpose of the Mafco Litigation Trust (the "Mafco Trust") is to pursue certain litigation claims against Ronald O. Perelman and various related entities and individuals. The District Court will have jurisdiction over both of these trusts, their trustees, the claims, and any other assets of the trusts. NEWCO will agree to loan up to $1.1, on a revolving basis to the Avoidance Trust and up to $1.0 on a revolving basis to the Mafco Trust to cover professional fees and expenses.

The Avoidance Trust will have one trustee designated, subject to the consent of NEWCO, by the committee of unsecured creditors. The beneficiaries of the Avoidance Trust will be NEWCO, the unsecured creditors committee, and the fixed senior secured lenders. Pursuant to the agreement governing the Avoidance Trust, the Debtor Companies will, on the consummation date, contribute to the Avoidance Trust all of their interests in any causes of action under certain avoidance sections of the Bankruptcy Code, but excluding those (i) relating to any claims under any tax-sharing or other similar agreement to which Marvel has been a party or; (ii) against any person or entity released or exculpated under the Toy Biz Plan. The Avoidance Litigation Trustee agree to enforce these claims for the benefit of the Avoidance Trust's beneficiaries and to hold any proceeds from these claims in trust for those beneficiaries. The Avoidance Litigation Trustee may be directed by NEWCO to choose not to pursue any litigation claim that threatens to adversely affect NEWCO's business. The existence of the Avoidance Trust will terminate five years after the consummation date of the Toy Biz Plan unless the District Court approves an extension of the term of the Avoidance Trust for good cause.

The Mafco Trust will have three trustees, one of which will be designated by the equity committee, one designated by the unsecured creditors' committee, and one designated by the Chapter 11 Trustee. The beneficiaries of the Mafco Trust will be the Debtor Companies unsecured creditors and the Marvel equity holders. Pursuant to the agreement governing the Mafco Trust, the Debtor Companies will, on the consummation date, contribute to the Mafco Trust all interests in any cause of action based upon claims against Ronald O. Perelman, certain of his affiliates, and certain other former directors of Marvel relating to the action filed by the Company on October 30, 1997, but excluding those (i) relating to any claims under any tax-sharing or other similar agreements to which Marvel has been a party or; (ii) against any person or entity released or exculpated under the Toy Biz Plan. The Mafco Litigation trustees agree to enforce these claims for the benefit of the Mafco Trust and hold any proceeds from these claims in trust for those beneficiaries. The existence of the Mafco Trust will terminate five years after the consummation date of the Toy Biz Plan unless the District Court approves an extension of the term of the Mafco Trust for good cause.

On May 12, 1998 a settlement was reached among Toy Biz, the Chapter 11 Trustee, representatives of the Company's secured lenders, and certain other parties to settle litigation commenced by the Company against Toy Biz, the secured lenders and those other parties (the "Governance Litigation"). As a part of this settlement, the Chapter 11 Trustee agreed to attempt to have vacated the appeal of the Governance Litigation concerning the Company's alleged right to replace the Toy Biz board of directors currently pending in the Court of Appeals and to support the Toy Biz Plan, which was amended to reflect the settlement agreement. The Governance Litigation will, pursuant to the Toy Biz Plan, be settled upon consummation of the Toy Biz Plan.

If the Toy Biz Plan is unable to be consummated, the Company's creditors or equity security holders may seek other alternatives for the Company, including bids for the Company or parts thereof through an auction process, or possible liquidation.

Holding Companies

On March 3, 1998, the District Court entered an order permitting the distribution to the holders of the Holding Companies debt obligations (the "Noteholders") of up to 12.5 million outstanding shares of common stock of Marvel which were pledged to secure the Holding Companies debt obligations (the "Notes"). Further, the order authorized the sale by Marvel Holdings, Inc. ("Holdings"), for cash of an additional 2.5 million shares of common stock of Marvel currently held by Holdings in escrow to pay certain administrative expenses. The Indentures Trustee subsequently sought an order from the District Court permitting the distribution to the Noteholders of additional shares of common stock which were pledged to secure the Notes. By an order dated April 9, 1998, the District Court authorized the distribution to the Noteholders of an additional 21.5 million shares of common stock and the sale of approximately 400,000 additional shares of common stock currently held by Holdings to pay certain administrative expenses.

On April 17, 1998 trading of the Marvel's common stock was suspended by the New York Stock Exchange and application will be made to the Securities and Exchange Commission to delist the stock. The Company understands that the New York Stock Exchange reached the decision in view of the fact that Marvel is below the Exchange's continued listing criteria. All issued and outstanding shares of Marvel common stock will be canceled as of the consummation date of the Toy Biz Plan.

Other

As part of the chapter 11 process, the Debtor Companies have received a significant number of proofs of claims. The Company has commenced the process of rejecting certain of these claims and further believes that a majority of these claims may have been paid pursuant to first day orders of its bankruptcy proceedings or are without merit. Although the Company believes that amounts recorded as of June 30, 1998 are adequate to cover the ultimate liability under these claims, there can be no assurance that these claims will not be settled for amounts in excess of these amounts. The Toy Biz Plan provides for, among other things, the delivery of $8.0 in cash to the unsecured creditors , the creation of the Avoidance Trust and the Mafco Trust, both of which are, in part for the benefit of the unsecured creditors, and the issuance of 1,750,000 plan warrants which will entitle an unsecured creditor to purchase one share of NEWCO stock for $17.25 within four years of the Toy Biz Plan's consummation. In addition, three series of stockholder warrants will be issued to, among other parties, the unsecured creditors which entitle the holder to purchase shares of NEWCO common stock at various prices over certain periods of time.

Financial accounting and reporting during a chapter 11 proceeding is prescribed in Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under Bankruptcy Code" ("SOP 90-7"). Accordingly, certain pre-petition obligations, which may be subject to settlement, have been classified as obligations, subject to chapter 11 settlement under reorganization and consist of the following estimated amounts:

MARVEL ENTERTAINMENT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

ACCOUNTS RECEIVABLE, NET:

4. SALE OF ASSETS

On June 15, 1998, the Company sold the remaining portion of its confectionery business for $13.0 in cash, plus certain assumed liabilities. The Company transferred certain assets, rights and properties free of all liens of its domestic operations as well as all capital stock of its interests in foreign operations, as well as certain debt, liabilities and obligations.

The Company used $9.8 of the net proceeds from the sale to pay down a portion of the principal balance of the DIP loan, and the balance was primarily used to prepay DIP interest. A summary of the confectionery net assets sold is illustrated below:

Current Assets------$ 12.0 Long Term Assets------9.5 Total Assets------$ 21.5 ------

Current Liabilities------$ 4.4

MARVEL ENTERTAINMENT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

Long Term Liabilities------0.2 ------Total Liabilities------$ 4.6 ------

Net Assets $ 16.9 ======

During the six months ended June 30, 1998, the Company recognized a loss on sale of approximately $5.9 which included $2.0 related to the

Included in the Condensed Consolidated Statements of Operations for the six months ended June 30, 1998, are $8.4 of confectionery revenues. Operating loss for the six months ended June 30, 1998 was $2.2.

MARVEL ENTERTAINMENT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)

5. FINANCIAL STATEMENTS OF ENTITIES OPERATING UNDER CHAPTER 11

The combined condensed balance sheet as of June 30, 1998 of the Debtor Companies is as follows:

ASSETS Current assets: Cash...... $ 16.6 Accounts receivable, net...... 14.5 Inventories, net...... 8.8 Prepaid expenses and other...... 5.4 ------Total currrent assets...... 45.3

Property, plant and equipment, net...... 3.1 Goodwill and other intangibles, net...... 108.3 Investment in Toy Biz...... 33.0 Deferred charges and other...... 14.1 Investments in and advances to subsidiaries, at cost...... (38.7) ------Total Assets...... $165.1 ======

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:

Debtor-in-Possession Loan...... $ 81.4 Accounts payable...... 20.5 Accrued expenses and other...... 92.5 ------Total current liabilities...... 194.4

Other long-term liabilities...... 10.2 Liabilities subject to settlement under reorganization...... 502.8 ------Total Liabilities...... 707.4 ------

Stockholders' deficit:

Common Stock...... 1.0 Additional paid-in capital...... 93.1 Accumulated deficit...... (636.5) Comprehensive loss...... 0.1 ------Total Stockholders' Deficit...... (542.3) ------Total Liabilities and Stockholders' Deficit...... $165.1 ======

MARVEL ENTERTAINMENT GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) (UNAUDITED)

The combined condensed statement of operations for the six months ended June 30,1998 of the Debtor Companies is as follows:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company is a leading creator, publisher and distributor of youth entertainment products for domestic and international markets based on fictional action adventure characters owned by the Company, licenses from professional athletes, sports teams and leagues and popular entertainment characters and other properties owned by third parties. The Company also licenses the Marvel Characters and properties for consumer products, television and film projects, on-line and interactive software, and advertising promotions. The Company's products include comic book and other children's publications, sports and entertainment trading cards, activity stickers, and adhesive paper products.

On December 27, 1996, the Debtor Companies filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code as debtors-in-possession under the control of the Bankruptcy Court. In November 1997 the District Court withdrew the order referring the Marvel Cases to the Bankruptcy Court. Accordingly, the Marvel Cases are being heard in the District Court. On December 22, 1997, the District Court appointed the Chapter 11 Trustee to replace the debtors-in-possession. On July 30, 1998, Marvel, Toy Biz, the secured creditors, the official committee for the unsecured creditors, the official committee for the equity holders and other interested parties reached a global settlement. On July 31, 1998, the District Court approved the settlement and confirmed the Toy Biz Plan. The Company anticipates the consummation of the Toy Biz Plan should occur on or about September 30, 1998, subject to certain conditions being satisfied. There can be no assurance, however, that the consummation of the Toy Biz Plan will occur as anticipated.

RESULTS OF OPERATIONS:

BACKGROUND

In recent years there has been a rapid decline in the comic book market. This decline was characterized by reduced readership and lower speculative purchases of comic books, which has materially adversely affected the Company's publishing business. In response, the Company has undertaken several strategic actions to mitigate the effect of such contraction. The Company believes that the comic book industry has continued to contract at a slower rate, while beginning to show some signs of stabilization. The Company has instituted marketing programs to bolster its position in the market place. There can be no assurance that these new marketing programs will strengthen the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Company's current position in the market or overcome any contraction in the comic book industry.

Similarly, over the past few years, there has been a significant contraction in the sports trading card market related in part to fewer speculative purchases. In addition, fan interest in overall sports declined during that time, which adversely affected sports trading card sales and increased returns for those periods. The Company believes that these factors negatively affected the sports trading card business, which caused the Company to experience lower sales, higher returns and higher inventory obsolescence and the negative impact of fixed royalty minimum guarantees. In 1997, the Company discontinued certain unprofitable sports products and continues to focus on trading card specialty stores and select mass market accounts in an effort to reduce costs and minimize the risk of returns and inventory obsolescence.

Since 1996, the Company's sale of entertainment trading cards has been adversely affected by a lack of commercial success of properties licensed from third parties as well as the lower demand for trading cards based on comic book characters. Since 1997, as a result of these weak properties in the entertainment trading card market, the Company discontinued certain unprofitable entertainment products and focused primarily on profitable sports trading card products.

The combination of minimum royalty and advertising contractual commitments to licensors and declines in the Company's trading card net revenues have continued to significantly and adversely affect the profit margins of the trading card business. During the bankruptcy proceedings, the Company had rejected various licenses and re-negotiated certain sports license agreements. On July 31, 1998, the Company entered into a settlement agreement with

NBA Properties Inc. ("NBAP") as to future royalty minimum amounts, the settlement of past due royalty amounts and the dismissal of the NBAP lawsuit filed against Panini. The settlement agreement requires District Court approval and will take effect on the consummation date of the Toy Biz Plan. There can be no assurance that the District Court will approve the NBAP settlement agreement. However, commencing August 1, 1998, the royalty obligation will accrue as if the settlement agreement was in effect on such date. The Company believes that the revised royalty commitment is consistent with current and expected basketball trading card sales levels. The settlement agreement provides for an $11.0 million payment to NBAP due on or before the consummation date. In addition, the settlement agreement allows NBAP a $20.0 million claim to be included in the unsecured creditors committee claim pool to be discharged under the Toy Biz Plan. If the amount recovered by NBAP from this claim is less than $1.0 million, NEWCO will pay the difference one year subsequent to the consummation date of the Toy Biz Plan.

After the conclusion of the 1997/98 basketball season, the NBA team owners have enforced a "lockout" of the NBA players, due to a dispute between the two parties over the current labor agreement. A lengthy disruption of the basketball season due to this "lockout" could have a negative effect on the Company's sales of basketball trading cards in the second half of 1998.

Primarily in the second half of 1997, the Company further reduced its operating costs through the realignment of management functions which resulted in among other things, the termination of a number of highly compensated employees, the restructuring and consolidation of administrative staff and editorial staff and the improvement of the distribution of the Company's trading card products.

The Company believes that since, and in part as a result, of the commencement of the Company's chapter 11 proceedings, the Company has continued to experience weakness in all of its businesses.

There can be no assurance that any plan of reorganization, including the Toy Biz Plan, will be consummated under the Bankruptcy Code. If the Company is unable to obtain consummation of the Toy Biz Plan or any other plan of reorganization, its creditors or equity security holders may seek other alternatives for the Company, which includes soliciting bids for the Company or parts thereof through an auction process or possible liquidation. There can be no assurance that upon consummation of the Toy Biz Plan or another plan of reorganization that there will be improvement in the Company's financial condition or results of operations. The Company has, and will continue to incur, professional fees and other cash demands typically incurred in bankruptcy.

THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE THREE MONTHS ENDED JUNE 30, 1997

Basis For Management's Discussion And Analysis

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Since July 1, 1997, due to the dispute over Marvel's ability to control or influence Toy Biz and because Toy Biz ceased reporting its financial information to the Company, the Company deconsolidated Toy Biz . The Condensed Consolidated Financial Statements do not include any adjustments to its investment in Toy Biz since July 1, 1997(see Note 2 of Notes to Condensed Consolidated Financial Statements). Accordingly, Management's Discussion and Analysis of Financial Condition and Results of Operations presented below compares only the Company's publishing, licensing, trading card and sticker, confectionery and adhesive businesses. The results of operations for Toy Biz included in the Company's Condensed Consolidated Statements of Operations for the quarter ended June 30, 1997 is illustrated below:

TOY BIZ: ------Quarter ended June 30, 1997 ------Revenue $34.5 Cost of sales 22.3 Selling, general & administrative expenses 17.0 Depreciation and amortization 3.8

Amortization of goodwill and intangibles .1 Interest Expense .1 Benefit for income taxes (3.5) ------Loss before minority interest (5.3) Minority interest in loss (3.9) ------Net loss ($1.4) ======

The Company's net revenues were $106.1 million and $95.1 million in 1998 and 1997, respectively, an increase of $11.0 million or 11.6%. This reflects a net increase of $9.6 million in trading card and sticker revenues, an increase of $0.3 million in licensing revenues, an increase of $1.3 million in other revenues partially offset by a decrease of $0.2 million in net publishing revenues.

The increase in net sticker revenues of $21.5 million was due to the major marketing effort put forth to support the 1998 World Cup Soccer Tournament which takes place once every four years, partially offset by the lack of commercial success of other third party licensed sticker products. The decrease in trading card net revenues of $11.9 million was due to the continued contraction of the trading card market as well as the discontinuance of certain unprofitable entertainment trading cards.

When comparing the second quarter of 1998 to the second quarter of 1997 publishing revenues have decreased by $0.2 million. The Company believes that its publishing revenues have continued to stabilize at levels consistent with the second half of 1997 and first quarter of 1998. The Company believes that the market continues to contract at a slower rate and has instituted marketing programs to bolster its position in the market place. The Company has maintained approximately the same market share over the most recent quarters. The Company continues to experience delays in the production and distribution of theatrical film and animated television shows based on key properties of Marvel by its movie and television licenses. Licensing revenues continued to be hindered as a result of the lack of successful new media coupled with the Company's bankruptcy proceedings. Licensing revenues will vary from period to period depending on the commercial success and the media exposure of the Marvel Characters.

Gross profit was $29.9 million and $21.0 million in the 1998 and 1997 periods, respectively, an increase of $8.9 million. As a percentage of net revenues, gross profit was 28.2% in the 1998 period as compared to 22.1% in the 1997 period. The increase in gross profit as well as gross profit percentage was due to increased sticker gross profit related to the World Cup Soccer Tournament. Publishing gross profit margin for the quarter ended June 30, 1998 was approximately 35% of net publishing sales. The Company reduced its costs which have offset the loss of efficiencies due to lower sales volumes. The Company expects the publishing gross profit margin to be maintained given the current level of volume. However, there can be no assurance that this level of volume will continue.

Selling, General & Administrative ("SG&A") expenses were $22.8 million and $34.5 million in the 1998 and 1997 periods, respectively. The decrease of $11.7 million was mainly attributable to the impact of a decrease in advertising, promotion and selling expenses, a realignment of management functions which gave rise to the elimination of a number of highly compensated employees, and a general reduction in overhead expenses associated with the restructuring of the comic book publishing and distribution, and trading card

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document operations. As a percentage of net revenues, SG&A was 21.5% in the 1998 period as compared to 36.3% in the 1997 period.

Depreciation and amortization was $1.8 million and $3.9 million in the 1998 and 1997 periods, respectively. The decrease of $2.1 million was due to the amortization of film costs related to the Hulk animated television series during the second quarter of 1997.

Amortization of goodwill, intangibles and deferred charges was $2.6 million and $4.0 million in the 1998 and 1997 periods, respectively. The decrease of $1.4 million reflects the impact of the lower carrying value of these assets and a change in their depreciable lives. In the fourth quarter of 1997, the Company recorded a write-down related to asset impairment which was primarily due to the significant and long-term changes in the trading card and sticker industries.

Interest expense, net was $6.4 million and $13.1 million in the 1998 and 1997 periods, respectively, a decrease of $6.7 million. In June 1997, the Bankruptcy Court suspended interest and adequate protection payments in connection with the Company's various pre-petition Credit Agreements (excluding the Panini Term Loan Agreement). In accordance with SOP 90-7 the unrecorded interest for the period was $12.7 million. The Company incurred higher interest costs in the second quarter of 1998 as compared to 1997 relating to increased borrowings in the first half of 1997 under the DIP Loan Agreement as well as higher interest rates charged due to the DIP Loan being in default.

In connection with the sale of the Company's confectionery business, during the quarter ended June 30, 1998, the Company recorded an additional loss of $2.5 million which included $2.0 million related to the cumulative translation adjustment of the foreign confectionery business sold.

For the second quarter of 1998 the Company incurred reorganization expenses of $4.3 million relating to professional fees and other expenses including the Chapter 11 Trustee and his professionals, as well as professional fees for the unsecured creditors committee and equity committee, bank fees and other bankruptcy costs. In the second quarter of 1997 the Bankruptcy Court ordered a suspension of the payment of professional fees associated with the bankruptcy. Commencing in the first quarter of 1998, under Court order, the Company resumed partial payment of these fees. As of June 30, 1998, the unpaid professional fees were $11.7 million. However, the total amount of all professional fees, whether partially paid or unpaid are subject to the District Court's determination as to the final amounts due, if any, to these professionals. For the second quarter of 1997, the Company incurred reorganization expenses of $2.6 million.

Provision/(benefit) for income taxes was $1.7 million and ($1.1) million in the 1998 and 1997 periods, respectively. In 1998, the tax provision primarily represents foreign taxes. In 1997, the tax benefit primarily represented benefits taken from the loss from foreign operations.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1997

Basis For Management's Discussion And Analysis

Since July 1, 1997, due to the dispute over Marvel's ability to control or influence Toy Biz and because Toy Biz ceased reporting its financial information to the Company, the Company deconsolidated Toy Biz . The Condensed Consolidated Financial Statements do not include any adjustments to its investment in Toy Biz since July 1, 1997(see Note 2 of Notes to Condensed Consolidated Financial Statements). Accordingly, Management's Discussion and Analysis of Financial Condition and Results of Operations presented below compares only the Company's publishing, licensing, trading card and sticker, confectionery and adhesive businesses. The results of operations for Toy Biz included in the Company's Condensed Consolidated Statements of Operations for the six months ended June 30, 1997 is illustrated below:

TOY BIZ:

Six Months ended June 30, 1997

------Revenue $68.8 Cost of sales 42.2 Selling, general & administrative expenses 27.8 Depreciation and amortization 6.5 Amortization of goodwill and intangibles .3 Interest expense .1 Benefit for income taxes (3.2) ------Loss before minority interest (4.8)

Minority loss in earnings (3.5) ------Net Loss ($1.3) ======

The Company's net revenues were $203.2 million and $217.5 million in 1998 and 1997, respectively, a decrease of $14.3 million or 6.6%. This reflects a net decrease of $11.1 million in trading card and sticker revenues, a decrease of $4.8 million in net publishing revenues, offset by an increase of $0.3 million in licensing revenues and an increase of $1.3 million in other revenues.

The decrease in trading card net revenues of $25.6 million was primarily due to the continued contraction of the trading card market as well as the discontinuance of certain unprofitable entertainment trading cards. Net sticker revenues increased by $14.5 million due to the World Cup soccer tournament which takes place once every four years offset by the lack of commercial success of entertainment stickers based on properties licensed from third parties.

When comparing the first half of 1998 to the first half of 1997 publishing revenues are down. More recently, the Company believes that its publishing revenues have begun to stabilize. The Company believes that the market continues to contract at slower rates and has instituted marketing programs to bolster its position in the market place. The Company has maintained approximately the same market share over the most recent quarters. The Company continues to experience delays in the production and distribution of theatrical film and animated television shows based on key properties of Marvel by its movie and television licenses. Licensing revenues continued to be hindered as a result of the lack of successful new media coupled with the Company's bankruptcy proceedings. Licensing revenues will vary from period to period depending on the commercial success and the media exposure of the Marvel Characters.

Gross profit was $54.3 million and $58.8 million in the 1998 and 1997 periods, respectively, a decrease of $4.5 million. As a percentage of net revenues, gross profit was 26.7% in the 1998 period as compared to 27.0% in the 1997 period. The decrease in gross profit as well as gross profit percentage was due to lower sales volume as well as the Company's inability to earn out its minimum guarantees with certain of its critical license agreements. This decrease was offset partially by increased sticker gross profit related to the 1998 World Cup Soccer Tournament. Publishing gross profit margin for the six months ended June 30, 1998 was approximately 35% of net publishing sales. The Company reduced its costs which have offset the loss of efficiencies due to lower sales volumes. The Company expects the publishing gross profit margin to be maintained given the current level of volume. However, there can be no assurance that this level of volume will continue.

SG&A expenses were $46.1 million and $72.2 million in the 1998 and 1997 periods, respectively. The decrease of $26.1 million was mainly attributable to the impact of a decrease in advertising, promotion and selling expenses, a realignment of management functions which gave rise to the elimination of a number of highly compensated employees, and a general reduction in overhead expenses associated with the restructuring of the comic book publishing and distribution, and trading card operations. As a percentage of net revenues, SG&A was 22.7% in the 1998 period as compared to 33.2% in the 1997 period.

Depreciation and amortization was $3.9 million and $6.0 million in the 1998 and 1997 periods, respectively. The decrease of $2.1 million was due to the amortization of film costs related to the Hulk animated television series during the second quarter of 1997.

Amortization of goodwill, intangibles and deferred charges was $5.2 million and $8.1 million in the 1998 and 1997 periods, respectively. The decrease of $2.9 million reflects the impact of the lower carrying value of these assets and a change in their depreciable lives. In the fourth quarter of 1997, the Company recorded a write-down related to asset impairment which was primarily due to the significant and long-term changes in the trading card and sticker industries

Interest expense, net was $13.3 million and $28.7 million in the 1998 and 1997 periods, respectively, a decrease of $15.4 million. In June 1997 the Bankruptcy Court suspended interest and adequate protection payments

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document in connection with the Company's various pre-petition Credit Agreements (excluding the Panini Term Loan Agreement). In accordance with SOP 90-7 the unrecorded interest for the period was $25.2 million. The Company incurred higher interest costs in the 1998 period as compared to the 1997 period relating to increased borrowings under the DIP Loan Agreement as well as higher interest rates due to the defaulted DIP Loan.

In connection with the sale of the Company's confectionery business, the Company recorded a loss on the sale of $5.9 million which included $2.0 million related to the cumulative translation adjustment of the foreign confectionery business sold during the six months ended June 30, 1998.

For the first six months of 1998 the Company incurred reorganization expenses of $9.4 million relating to professional fees and other expenses including the Chapter 11 Trustee and his professionals, as well as professional fees for the unsecured creditors committee and equity committee, bank fees and other bankruptcy costs. For the first six months of 1997, the Company incurred reorganization expenses of $6.0 million.

Provision for income taxes was $2.2 million and $2.4 million in the 1998 and 1997 periods, respectively. In 1998, the tax provision primarily represents foreign taxes. In 1997, the tax provision primarily represented foreign taxes on income from Panini's operations and certain state and local taxes.

LIQUIDITY AND CAPITAL RESOURCES

On December 27, 1996 in connection with the filing of their petition in the Bankruptcy Court, the Debtor Companies received approval to pay on time and in full undisputed pre-petition obligations, including salaries, wages and benefits to all of its employees, and debts due to its trade creditors and independent contractors and to continue funding strategic initiatives. In November 1997, the unsecured creditors committee applied under Rule 60-b of the Federal Rules of Civil Procedure for an order vacating the first day order concerning the payment of pre-petition debt. No hearing occurred and none has been scheduled by the District Court. In January, 1998, the Debtor Companies discontinued the payment of such pre-petition debt and do not intend to make any payments regarding such debt without first applying to the District Court for approval.

On January 24, 1997, the Bankruptcy Court approved the $100 million DIP Loan, which is provided by a syndicate of lenders, including The Chase Manhattan Bank, as agent bank. The DIP Loan matured on June 30 ,1997 and no repayment has occurred except for the cash proceeds of $12.8 million resulting from the sale of Marvel's confectionery businesses and the current payment of interest and administrative fees. The DIP Lenders have agreed to forbear from taking any action. Such forbearance is continuing on a daily basis. With a full reservation of all rights, the DIP Lenders and the pre-petition secured lenders have agreed to the Debtor Companies continued use of cash collateral on the same terms and conditions and with most of the same protections as set forth in the current financing and cash collateral order approved by the Bankruptcy Court through August 31,1998. There can be no assurance that the DIP Lenders and the pre-petition secured lenders will allow Marvel to continue to use its cash collateral beyond such date.

Management of the Company believes the Company has adequate near-term working capital to fund normal operations through December 31, 1998. In July, 1998, the Company received net proceeds, of $12.8 million in connection with the sale of the remaining portion of its confections business. The Company paid down approximately $9.8 million of the principal portion of its DIP loan and prepaid its DIP interest with the remaining amount. The Company believes it has adequate resources through its use of cash collateral to fund operations, pay DIP interest and to make partial payments for professional fees related to the bankruptcy and adequate protection payments, as authorized by the District Court. In the event the Toy Biz Plan is not consummated, and the Company does not have sufficient funds, the Company may suspend payment of these professional fees. In addition, the Company may also enter into a replacement DIP agreement with The Chase Manhattan Bank. In connection with the appointment of the Chapter 11 Trustee, The Chase Manhattan Bank advised the District Court that it is willing to lead a syndicate to make loans to Marvel subject to execution of definitive documentation and agreement on key terms and payment of adequate protection amounts. In any event, District Court approval is required for such additional loans to the Company. There can be no assurance that the DIP Lenders and the pre-petition lenders will allow the Company to continue to use its cash collateral or that the District Court will grant approval on such additional loans.

On June 5, 1997, the Bankruptcy Court approved an order suspending adequate protection payments being made by Marvel to the Bank Lenders. As a result, Marvel has ceased making interest payments on the U.S. Term Loan

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Agreement, the Amended and Restated Credit Agreement, and the Chase Revolving Line of Credit. The amount of the suspended adequate protection payment as of June 30, 1998 was $59.6 million and is not included in the liabilities of Marvel reflected in Marvel's Condensed Consolidated Balance Sheets. Marvel has, however, continued paying interest on the DIP Loan.

On August 11, 1997, Panini entered into an agreement with The Chase Manhattan Bank for a loan of lire 27 billion (approximately $15.3 million based on exchange rates at August 3, 1998) to provide short term liquidity (the "Chase Short-Term Facility"). On August 5, 1997, the Company received approval from the Bankruptcy Court to guarantee the Chase Short-Term Facility. This guarantee is junior to all liens of DIP Lenders but is senior to the Secured Lenders. This loan is subject to a number of financial and other covenants and conditions of borrowing. As of June 30, 1998, the credit line was fully used. This loan expired on October 31, 1997, and by stipulation, the maturity date was extended to March 31, 1998. As a result of Panini's significant operating loss in 1997 and continued liquidity crisis, the Company was able to further extend the payment date of this loan to the earlier of September 30, 1998 or the consummation date of the Toy Biz Plan. During the quarter ended June 30, 1998, Panini continued to use its local bank lines and factoring lines. The Company believes that Panini may need to enter into an additional credit facility to meet its cash requirements for the near term. In the event that Panini cannot obtain an additional credit facility, Panini may be required to sell some of its assets or the Company may be forced to obtain a replacement DIP Loan. However, there can be no assurance that the Company will be able to obtain a replacement DIP Loan which would allow the Company to transfer funds to Panini or that the Company will be successful in renegotiating additional lines of credit outside of the Debtor Companies. In the event operating losses continue in the future, there also can be no assurance that Panini will not become subject to reorganization proceedings in Italy, which could result in the Company writing off a portion of the remaining goodwill and other intangibles in Panini of approximately $70.0 million while at the same time the Company would remain a guarantor under the Panini Term Loan Agreement and the Chase Short-Term Facility.

As of August 3, 1998, the Company's outstanding bank indebtedness was approximately $724.1 million, of which $81.4 million related to borrowings under the DIP Loan, $601.5 million related to borrowings under the credit agreements, approximately lire 20.8 billion (approximately $11.8 million based on exchange rates at August 3, 1998) relates to borrowings for Panini's Adespan adhesives facility, approximately lire 20.6 billion (approximately $11.7 million based on exchange rates at August 3, 1998) relates to borrowings under Panini's short term lines of credit, approximately lire 27 billion (approximately $15.3 million based on exchange rates at August 3, 1998) relates to borrowings under Panini's loan from The Chase Manhattan Bank and approximately $2.4 million relates to drawdowns against outstanding letters of credit. As of August 3, 1998, Panini had approximately lire 22.0 billion (approximately $12.5 million based on exchange rates at August 3, 1998) available under its short term lines of credit.

As part of the chapter 11 process, the Debtor Companies have received a significant number of proofs of claims. The Company has commenced the process of rejecting various claims and further believes that a majority of these claims may have been paid pursuant to first day orders of its bankruptcy proceedings or are without merit. Although the Company believes that amounts recorded as of June 30, 1998 are adequate to cover the ultimate liability under these claims, there can be no assurance that these claims will not be settled for amounts in excess of these amounts.

As chapter 11 debtors, the Debtor Companies may sell (subject, in certain circumstances, to District Court approval), or otherwise dispose of assets, and liquidate or settle liabilities for amounts other than those reflected in the Condensed Consolidated Financial Statements. The amounts reported in the Condensed Consolidated Financial Statements do not give effect to any adjustments to the carrying value of assets or amount of liabilities that might result as a consequence of actions taken pursuant to the bankruptcy or a plan of reorganization. If the Company is unable to obtain consummation of the Toy Biz Plan or any other plan of reorganization, its creditors or equity security holders may seek other alternatives for the Company, including bids for the Company or parts thereof through an auction process or possible liquidation. In that event it is possible that certain assets would not be realized and additional liabilities and claims would be asserted which are not presently reflected in the Condensed Consolidated Financial

Statements and which are not presently determinable. The effect of any such assertion or non-realization could be material. These conditions raise substantial doubt as to the Company's ability to continue as a going concern.

Net cash provided by (used in) operating activities was $11.7 million and ($62.0) million for the six months ended June 30, 1998 and 1997 respectively. Although the Company incurred a net loss of $31.9 million for the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document six months ended June 30, 1998, approximately $40.9 million of these losses were either non-cash charges or reserves which were provided in accordance with generally accepted accounting principles. The use of funds in 1997 was principally due to the loss from operations and was partially offset by a decrease in working capital. Cash used in investing activities, excluding net proceeds from the sale of its confectionery business was $2.0 million and $25.3 million for the six months ended June 30, 1998 and 1997, respectively. The primary use of these funds in 1998 was for capital expenditures for the Company. The primary use of cash in 1997 was for capital expenditures for the Company and for costs incurred with the construction of the Marvel Mania theme restaurant in Los Angeles. Net cash (used in) provided by financing activities was ($20.2) million and $89.5 million for the six months ended June 30, 1998 and 1997, respectively. The use of cash for the 1998 period was due primarily to the paydown of DIP principal of $9.8 million and the paydown by Panini of the current portion of its Adespan loan and other short-term lines. The source of cash in the 1997 period was due primarily to the increased borrowings under the DIP Loan.

Since the Debtor Companies entered into bankruptcy on December 27, 1996 through June 30, 1998, they have incurred approximately $25.7 million in professional fees and other costs typical to those incurred by entities in bankruptcy. On June 17, 1997, the Bankruptcy Court ordered a suspension of the current payment of professional fees associated with the bankruptcy. However, on March 4, 1998 and on June 10, 1998, the District Court ordered the Debtor Companies to pay $1.2 million and $2.5 million respectively, of certain professional fees. In addition, on June 10, 1998, the District Court ordered the Company to pay $2.5 million to Chase Manhattan Bank as adequate protection payments. All of these amounts have been fully paid as of August 15, 1998. The Debtor Companies have received invoices of approximately $2.2 million for fees rendered by professionals that have not been retained either by the Debtor Companies or an official committee of the bankruptcy proceedings or appointed by the District Court. These professionals filed a fee application with the District Court for services performed in 1997. The Debtor Companies have not accrued any amount for the payment of such fees. In the event the fees of such professionals are approved by the District Court, the Debtor Companies would be required to pay such fees. As of June 30, 1998, unpaid professional fees included in accounts payable and accrued expenses were approximately $10.1 million.

On July 31, 1998, the Company entered into a settlement agreement with NBAP as to future royalty minimum amounts, the settlement of past due royalty amounts and the dismissal of the NBAP lawsuit filed against Panini. The settlement agreement requires District Court approval and will take effect on the consummation date of the Toy Biz Plan. However, the royalty obligation will accrue as if the settlement agreement was in effect on August 1, 1998. The Company has accrued unpaid minimum royalties due to NBAP through June 30, 1998 under its former NBAP agreement. There can be no assurance that the NBAP settlement agreement will be approved.

The Company continues to generate tax net operating losses. These losses may generally be carried forward and used against future taxable income subject to certain limitations. One such limitation, which is triggered by an ownership change, referred to as a Section 382 limitation, will likely occur as the Company emerges from bankruptcy and is reorganized. The Section 382 limitation generally limits the amount of tax losses that can annually be used to offset "post-change" income to an amount equal to the product of the "long-term tax exempt rate" for ownership changes (which, for example, was 5.15% for August, 1998) and the fair market value of the Company as of the date of the ownership change. Special rules for companies that undergo ownership changes while in bankruptcy may partially alleviate the Section 382 limitation. The Company's net operating losses may be further limited in future utilization by the separate return limitation years ("SRLY") rules of the consolidated return regulations. Additionally, to the extent that the Company has cancellation of indebtedness income in bankruptcy, tax attributes such as net operating losses will be reduced or eliminated. Consequently, there can be no assurance that any of the Company's net operating losses will be available for future use or that various limitations may limit their usage. Due to these concerns, the debtors have fully reserved against any benefit for such losses in their

condensed consolidated financial statements. A more detailed description of these limitations and other tax matters can be found in Marvel's Form 10-K for the period ended December 31, 1997.

As part of the Toy Biz Plan, two litigation trusts will be formed on the consummation date. The purpose of the Avoidance Litigation Trust (the "Avoidance Trust") is to pursue bankruptcy avoidance claims. The purpose of the Mafco Litigation Trust (the "Mafco Trust") is to pursue certain litigation claims against Ronald O. Perelman and various related entities and individuals. The District Court will have jurisdiction over both of these trusts, their trustees, the claims, and any other assets of the trusts. NEWCO will agree to

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document loan up to $1.1 million, on a revolving basis to the Avoidance Trust and up to $1.0 million on a revolving basis to the Mafco Trust to cover professional fees and expenses.

The Avoidance Trust will have one trustee designated, subject to the consent of NEWCO, by the committee of unsecured creditors. The beneficiaries of the Avoidance Trust will be NEWCO, the unsecured creditors committee, and the fixed senior secured lenders. Pursuant to the agreement governing the Avoidance Trust, the Debtor Companies will, on the consummation date, contribute to the Avoidance Trust all of their interests in any causes of action under certain avoidance sections of the Bankruptcy Code, but excluding those (i) relating to any claims under any tax-sharing or other similar agreement to which Marvel has been a party or; (ii) against any person or entity released or exculpated under the Toy Biz Plan The Avoidance Litigation Trustee agree to enforce these claims for the benefit of the Avoidance Trust's beneficiaries and to hold any proceeds from these claims in trust for those beneficiaries. The Avoidance Litigation Trustee may be directed by NEWCO to choose not to pursue any litigation claim that threatens to adversely affect NEWCO's business. The existence of the Avoidance Trust will terminate five years after the consummation date of the Toy Biz Plan unless the District Court approves an extension of the term of the Avoidance Trust for good cause.

The Mafco Trust will have three trustees, one of which will be designated by the equity committee, one designated by the unsecured creditors' committee, and one designated by the Chapter 11 Trustee. The beneficiaries of the Mafco Trust will be the debtor companies unsecured creditors and Marvel equity holders. Pursuant to the agreement governing the Mafco Trust, the Debtor Companies will, on the consummation date, contribute to the Mafco Trust all interests in any cause of action based upon claims against Ronald O. Perelman, certain of his affiliates, and certain other former directors of Marvel relating to the action filed by the Company on October 30, 1997, but excluding those (i) relating to any claims under any tax-sharing or other similar agreements to which Marvel has been a party or; (ii) against any person or entity released or exculpated under the Toy Biz Plan. The Mafco Litigation trustees agree to enforce these claims for the benefit of the Mafco Trust and hold any proceeds from these claims in trust for those beneficiaries. The existence of the Mafco Trust will terminate five years after the consummation date of the Toy Biz Plan unless the District Court approves an extension of the term of the Mafco Trust for good cause.

YEAR 2000

As part of the Company's proposed merger with Toy Biz, as provided in the Toy Biz Plan, Toy Biz has made representations to the Company that they are currently installing a new information system that will be Year 2000 compliant. Toy Biz has represented that as part of the merger they intend to convert Marvel to their information systems and that Toy Biz and Marvel will both be Year 2000 compliant by the early half of 1999. The Company's other operating subsidiaries, Panini and Fleer/SkyBox are currently upgrading their individual information systems to be Year 2000 compliant independently of Toy Biz and anticipate completion in the early half of 1999. In addition, Panini is also upgrading its information systems for the conversion of European currencies into the Eurodollar. This schedule may not permit the Company and its subsidiaries to make these systems compatible on a timely basis. There can be no assurance that the Company will be successful in converting to Year 2000 or Eurodollar capabilities, nor that it will have the funds necessary to perform the conversion.

RECENTLY ISSUED ACCOUNTING STANDARDS

In 1997, the FASB issued Statement of Financial Accounting Standards No 131, "Disclosures about Segments of and Enterprise and Related Information" ("FAS 131"). The Company is not required to disclose

segment information in accordance with FAS 131 until December 31, 1998, at which time it will restate prior years' segment disclosures to conform with FAS 131 segment presentation.

FORWARD-LOOKING STATEMENTS

Statements in this quarterly report on Form 10-Q for the quarter ended June 30, 1998 and in its Annual Report on Form 10-K and amendments thereto, for the year ended December 31, 1997 such as "intend", "estimated", "believe", "expect", "anticipate" and similar expressions which are not historical are forward-looking statements that involve risks and uncertainties. Such statements include, without limitation, the Company's expectation as to future financial performance. In addition to factors that may be described in the Company's Securities and Exchange Commission filings, including this filing, the following factors, among others, could cause the Company's financial performance to differ materially from that expressed in any forward-looking statements made by, or on behalf of, the Company: (i) the ability of the Debtor

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Companies to successfully reorganize in bankruptcy and the timing and outcome of such bankruptcy proceedings and the resolution of the Company's dispute with Toy Biz, including but not limited to the contemplated consummation of the Toy Biz Plan,, (ii) the ability of the Company to obtain an additional or new debtor loan or other financing, (iii) continued weakness in the comic book market which cannot be overcome by the Company's new editorial, production and distribution initiatives in comic publishing; (iv) continued general weakness in the trading card and children's activity sticker markets; (v) the effectiveness of the Company's changes to its trading card and publishing distribution; (vi) a decrease in the level of media exposure or popularity of the Company's characters resulting in declining revenues based on such characters; (vii) the lack of continued commercial success of properties owned by major licensors which have granted the Company licenses for its sports and entertainment trading card and sticker businesses; (viii) unanticipated costs or delays in completing projects associated with the Company's new ventures including media, interactive software and on-line services and theme restaurants; or (ix) the ability of the Company to make its information systems year 2000 compliant.

PART II.

OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS.

The Company is a party to various legal proceedings and claims described in previous filings. During the quarter ended June 30, 1998 there were no material developments in any of such proceedings not previously disclosed, except as indicated below. Although it is impossible to predict the outcome of any outstanding legal proceeding, the Company believes that other than the litigation involving the NBAP, all of its legal proceedings and claims, individually and in the aggregate, are not likely to have a material adverse effect on its financial condition or results of operations. As a result of the Debtor Companies filing of petitions pursuant to the Bankruptcy Code, the Company's legal proceedings, other than the Debtor Companies' bankruptcy proceedings and those proceedings involving subsidiaries of Marvel who are not Debtor Companies (principally, Panini), have been automatically stayed.

The Company was named as a defendant in a purported class action filed on July 26, 1996 in the United States District Court for the Eastern District of New York entitled Fishman, et al v. Marvel Entertainment Group, Inc., by four persons who allegedly purchased sports and entertainment cards manufactured by Fleer/Skybox. The action was directed against standard business practices in the trading card industry, including the practice of randomly placing insert cards in packages of sports and entertainment trading cards, and alleged that these practices constituted illegal gambling activity in violation of state and Federal law. Plaintiffs sought certification of a class of persons who within four years prior to the filing of the complaint purchased packages of trading cards that might contain randomly inserted cards, and recovery of treble damages. On September 30, 1996, the Company filed a motion to dismiss the complaint. The Complaint was dismissed with prejudice on August 21,1997. On October 17, 1997, the plaintiffs filed a motion to alter, amend or vacate the dismissal. On April 28, 1998, plaintiff's motion was denied. Plaintiffs have appealed the denial of the motion to the Second Circuit Court of Appeals.

settlement agreement requires District Court approval and will take effect on the consummation date of the Toy Biz Plan. There can be no assurance that the District Court will approve the NBAP settlement agreement. However, commencing August 1, 1998, the royalty obligation will accrue as if the settlement agreement was in effect on such date. The Company believes that the revised royalty commitment is consistent with current and expected basketball trading card sales levels. The settlement agreement provides for an $11.0 million payment to NBAP due on or before the consummation date. In addition, the settlement agreement allows NBAP a $20.0 million claim to be included in the unsecured creditors committee claim pool to be discharged under the Toy Biz Plan. If the amount recovered by NBAP from this claim is less than $1.0 million, NEWCO will pay the difference one year subsequent to the consummation date of the Toy Biz Plan.

As reported in the Company's Form 10-K filed with the Securities and Exchange Commission on April 15, 1998, an action was initiated by Toy Biz against the Company in the District Court in June 1997 (the "Governance Litigation"). Toy Biz was seeking a judicial determination as to the proper composition of its board of directors and as to whether the Class B Common Stock of Toy Biz owned by Marvel had automatically converted into Class A Common Stock of Toy Biz. On March 30, 1998, the District Court entered a judgment declaring that the supervoting rights associated with the Class B

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Common Stock of Toy Biz owned by the Company to control the Toy Biz board, terminated on June 20, 1997 when Carl C. Icahn took control of the Company. This judgment was appealed by the Chapter 11 Trustee and others to the United States Court of Appeals for the Third Circuit (the "Court of Appeals")..

Subsequent to the Company's filing of its Form 10-K on April 15, 1998, the Company received notice that on April 13, 1998, the Court of Appeals stayed, pending the outcome of the appeal, the previously scheduled confirmation hearing on the Toy Biz Plan of reorganization that had been proposed by Toy Biz and the Company's Secured Lenders, which provides for the merger of Toy Biz and Marvel.

Pursuant to an Agreement and Stipulation of Settlement dated May 11, 1998, ("the Global Settlement") a settlement was reached among Toy Biz, the Chapter 11 Trustee, representatives of the Company's Secured Lenders and certain other parties to settle litigation commenced by the Company against Toy Biz, the Company's Secured Lenders and those other parties. As a part of this settlement, the Chapter 11 Trustee agreed to attempt to have vacated the appeal of the Governance Litigation currently pending in the Court of Appeals and to support the Toy Biz Plan, which has been amended to reflect the terms of the settlement agreement. On June 12, 1998, the District Court held a hearing regarding the settlement which was objected to by the unsecured creditors committee, the equity committee, La Salle National Bank ("La Salle") and High River Limited Partnership, Carl Icahn, Westgate International L.P. and Vincent Intrieri (hereinafter collectively the "Icahn Interests"). The District Court approved the settlement on June 25, 1998. Appeals were filed by all of the objectors.

On June 30, 1998, and July 1, 1998, the District Court held hearings regarding confirmation of the Third Amended Plan, which was objected to by the unsecured creditors committee, the equity committee, La Salle and the Icahn Interests. On July 13, 1998, the District Court entered an order confirming the Third Amended Plan. Appeals were filed by all of the objectors.

Following extended negotiations, a global settlement was reached by and between the proponents of the Toy Biz Plan, other Toy Biz parties, Mark Dickstein and his related entities, the Chapter 11 Trustee, the Chase Manhattan Bank on behalf of senior secured lenders, the DIP lenders, the Icahn Interests, La Salle, the unsecured creditors committee, and the equity committee. Pursuant to a stipulation (the "Stipulation") entered into by all of those parties, a modified Third Amended Plan, filed as the Toy Biz Plan provided for, among other things, enhanced payments to all classes of creditors in return for the withdrawal of all objections, adversary proceedings and appeals. The Stipulation also provides for mutual general releases by and between all of the parties. A consent order was entered by the District Court on July 31, 1998, approving the Stipulation and confirming the Toy Biz Plan. The Global Settlement and the Toy Biz Plan are subject to certain conditions referred to therein, which must be satisfied on or before the consummation date of the Toy Biz Plan.

Pursuant to the foregoing, the Governance Litigation will be settled upon the consummation date. Certain claims against Ronald O. .Perelman and certain of his affiliates will then become the property of the Mafco Trust.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(A) Exhibits Exhibit No. Description *10.3 Assignment and Withdrawal Agreement dated March 6, 1998 between the Registrant and Ebco Management, Inc., Robert Earl, Keith Barish, Universal Station, Inc. and Universal Studios, Inc.

*10.4 Settlement Agreement dated July 31, 1998 by and between NBA Properties, the Registrant, Fleer/Skybox, the Chapter 11 Trustee and Panini.

*27.1 Financial Data Schedule

------*Filed herewith

(B) Reports on Form 8-K

Form 8 K was filed with the SEC on August 3, 1998 reporting with respect to Item 5, Other Events.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MARVEL ENTERTAINMENT GROUP, INC. (Registrant)

By: /s/ August J. Liguori ------Dated: August 19, 1998 August J. Liguori Executive Vice President, Finance Chief Financial Officer (Principal Accounting Officer)

THIS AGREEMENT is made and entered into as of the day of , 1998 by and between MARVEL RESTAURANT VENTURE CORP., a Delaware corporation, ("Marvel"), EBCO MANAGEMENT, INC., a Florida corporation ("EBCO"), MARVEL ENTERTAINMENT GROUP, INC., a Delaware corporation ("MEG"), MARVEL CHARACTERS, INC. ("Characters"), ROBERT EARL ("Earl"), KEITH BARISH ("Barish"), UNIVERSAL STATION, INC., a California corporation ("UCO") and UNIVERSAL STUDIOS, INC., a Delaware corporation, formerly MCA Inc. ("Universal").

WITNESSETH:

WHEREAS, Marvel and EBCO formed M Restaurant Venture, a Florida general partnership (the "Venture") pursuant to a certain Joint Venture Agreement dated as of December 9, 1994 (to which MEG, Earl and Barish were signatories) (the "Venture Agreement") for purposes of constructing, developing, owning and operating restaurants, themed around comic book, cartoon and animation characters owned by or licensed to MEG and/or its subsidiaries and marketed as "Marvel Mania Restaurants" (the "Restaurants"); and

WHEREAS, the Venture entered into a certain Partnership Agreement and Ancillary Agreement with UCO dated as of September 29, 1995 (the "Partnership Agreement") pursuant to which the Venture and UCO formed U/MRV Co. (the "Partnership") to develop a Restaurant at Universal Studios, Hollywood, California (the "Hollywood Restaurant") and the Partnership entered into a certain Lease Agreement dated September 29, 1995 with Universal to lease the property in and on which the Hollywood Restaurant was to be operated (the "Lease"); and

WHEREAS, pursuant to the Lease, the Partnership, being obligated to develop, construct and operate a Restaurant commenced construction thereof and, pursuant to the Partnership Agreement, the Venture, being obligated to do so, has contributed or will contribute its proportionate share of the Initial Cost (as defined in Section 12.4 of the Partnership Agreement) and has contributed or will contribute the Initial Cost Excess (as defined in Section 12.4 of the Partnership Agreement); and

WHEREAS, pursuant to the Partnership Agreement Marvel granted a non-exclusive license ("License") to the Partnership to use the Marvel Characters and Marvel Format as set forth in the Partnership Agreement. Pursuant to the Partnership Agreement MEG and Characters each also agreed to be bound by the grant of the License and the terms of such grant as set forth in the Partnership Agreement.

WHEREAS, the parties to the Venture executed a certain undated Memorandum of Understanding (the "Memorandum") which Memorandum amended certain provisions of the Venture Agreement which included imposing an obligation on Marvel to post a standby letter of credit to secure its obligations to fund the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Venture's share of the Initial Cost and Initial Cost Excess together with all costs associated with the Venture's responsibilities under the Partnership

Agreement in supervising the design, construction, equipping and fixturing of the restaurant and the day to day management thereof, including without limitation all pre-opening operational staffing and training. For purposes of this Agreement, the Venture Agreement as amended by the Memorandum is hereinafter collectively referred to as the "Venture Agreement"; and

WHEREAS, pursuant to the Memorandum, MEG, the Venture, EBCO and Marvel executed a certain Letter of Credit Agreement (the "L.C. Agreement") dated the 25th day of February, 1997 pursuant to which MEG agreed to provide a letter of credit in the amount of $6,100,000 in favor of EBCO to secure its obligations pertaining to the Hollywood Restaurant and to secure payment of other expenses and overhead expressly enumerated on Exhibit "B" attached thereto; and

WHEREAS, pursuant to the L.C. Agreement and the Letter of Credit issued by Chase Manhattan Bank dated February 25, 1997 (the "Letter of Credit") in connection therewith, on or about June 23, 1997, EBCO drew down from the Letter of Credit, the available balance in. the amount of $4,451,000 and on or about June 24, 1997 refunded $314,000 to Marvel, leaving $4,137,000 in available funding. EBCO has used $4,016,972.39 to satisfy Marvel's obligations to fund the Venture's responsibilities under the Partnership Agreement. As of the date hereof the balance of funds held by EBCO is approximately $151,541.02 ("Remaining LC Funds") including approximately $31,513.41 of earned interest; and

WHEREAS, the parties hereto have now agreed that subject to the terms and conditions hereinafter set forth, following the opening of the Hollywood Restaurant, EBCO will withdraw from the Venture and assign all of its right, title and interest in the Venture to a designee of Marvel, whereupon EBCO, Earl and Barish will have no further interest in or obligations to the Venture, Marvel, MEG, the Partnership, UCO and/or Universal;

NOW, THEREFORE, in consideration of the obligations, representations and agreements contained herein, and for other good and valuable consideration, the parties hereto agree as follows:

1. WITHDRAWAL AND ASSIGNMENT. Simultaneously with the execution of this Agreement, EBCO shall withdraw from the Venture and assign all of its right title, interest, benefits and privileges in and to the Venture free and clear of all liens, encumbrances, liabilities, claims and restrictions to a person or entity designated by Marvel by executing a certain Assignment of Partnership Interest in the form attached hereto as EXHIBIT "A". EBCO, Earl and Barish hereby acknowledge that by withdrawing from the Venture and assigning its interest therein, EBCO, Earl and Barish (or any affiliate of EBCO, Earl and/or Barish) shall be deemed to have relinquished any and all right, title, interest, benefits and privileges they may have or may have had in the Hollywood Restaurant or any other Restaurants to be developed by the Venture

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and any other right, title, interests, benefits and privileges they may have or may have had under the Venture Agreement, the Partnership Agreement or the Lease, or any other document, instrument or agreement executed in connection with or on behalf of the Venture, including without limitation, that certain License Agreement dated March 19, 1996 by and between Marvel Characters, Inc. and the Venture. In consideration thereof, except with respect to EBCO's

obligation under this Agreement, upon assignment of EBCO's interest in the Venture, EBCO, Earl, Barish and any affiliate thereof shall be relieved in all respects of any obligations now existing or hereinafter arising on behalf of the Venture and Partnership and any limitations imposed under the Venture Agreement, Partnership Agreement, Lease, the Florida Letter of Intent or any document, instrument or agreement in connection therewith or on behalf of the Venture including, without limitation, the limitations set forth in Sections 2 and 3 of the Memorandum.

2. POST-WITHDRAWAL OBLIGATIONS. From and after the date hereof, EBCO shall:

(a) perform the Pre-Opening Responsibilities (hereinafter defined) as set forth in Section 3 hereof for a period commencing on the date hereof and ending on the Withdrawal Date which is defined as the date which is fifteen (15) days from the date hereof;

(b) deliver to the Partnership no later than the Withdrawal Date, a list, certified to be true and correct in all material respects as of the date the Hollywood Restaurant is opened to the public, of all contractors, suppliers and other personnel who have performed services or supplied materials or goods in connection with the demolition, abatement, design, engineering, architecture, construction and/or pre-opening of the Hollywood Restaurant, the amounts paid to such contractors, suppliers and personnel and any amounts which may be due and owing. In the case of contractors, suppliers and personnel who have not been paid in full as of the Withdrawal Date the Partnership shall pay all such outstanding sums.

(c) deliver to the Partnership no later than the Withdrawal Date, a list, certified to be true and correct in all material respects, of all agreements, contracts, letters of intent, purchase orders, commitments, warranties, leases, insurance policies, licenses, permits, authorizations, approvals, certificates, building plans and specifications and any and all other documents in connection with the ownership, development, construction and operation of the Restaurants which may have been executed, issued and/or delivered for the benefit of the Venture or the Partnership but shall be in the name of EBCO, together with the original copies thereof, and an executed Assignment of Agreements in the form attached hereto as EXHIBIT "B".

(d) deliver to (i) Marvel no later than the Withdrawal Date, (A) all books, records and bank accounts relating to the Venture or the

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document operation thereof (with satisfactory evidence of EBCO's termination of any rights with respect thereto); and (B) copies of all conceptual and building plans and specifications pertaining to the design and construction of any Restaurant (other than the Hollywood Restaurant) contemplated to be developed by the Venture and shall deliver to (ii) the Partnership no later than the Withdrawal Date (A) all licenses, permits, authorizations, approvals, certificates and agreements with or from all boards, agencies, departments and governmental entities, relating directly or indirectly to the ownership, use, operation and maintenance of the Hollywood Restaurant or the construction thereof; (B) copies of all conceptual and building plans and specifications pertaining to the design and construction of the Hollywood Restaurant. All other documents, agreements and correspondence of any kind whatsoever pertaining to the Venture and/or the Partnership or otherwise delivered to either the Partnership or the Venture (other than correspondence which is considered attorney's work product or otherwise protected by attorney/client privilege) which shall be maintained by EBCO

at 8669 Commodity Circle, Orlando, Florida 32819 for a period of one (1) year. Representatives of the Partnership and/or the Venture shall have the opportunity upon reasonable prior notice to EBCO to inspect, review and/or copy any such documents, agreements and correspondence.

(e) deliver to Marvel no later than the Withdrawal Date, the Remaining LC Funds together with a full and final accounting, in a form reasonably acceptable to Marvel, documenting all expenditures made by EBCO on behalf of the Venture, including the amounts of such expenditures, to whom they were made, and when they were made.

3. PRE-OPENING RESPONSIBILITIES. From and after the date hereof, until the Withdrawal Date, EBCO shall be obligated to take such actions in the exercise of its best efforts as are necessary to enable the Hollywood Restaurant to be open to the public on a timely basis, all in the same manner and at the same level of quality as if EBCO were to continue to have a substantial interest in the Hollywood Restaurant but for the withdrawal from the Venture in accordance with this Agreement, except EBCO, Marvel and UCO have mutually agreed to reduce the staff training time from the time EBCO would otherwise provide to train personnel (the "Pre-Opening Responsibilities"). Notwithstanding anything contained herein to the contrary, EBCO shall, as of the date hereof, be relieved of all responsibility and obligations for obtaining the liquor license for the Hollywood Restaurant and for supplying, designing and producing merchandise for resale at the Hollywood Restaurant; it being understood that such responsibilities and obligations shall be assumed by Marvel and UCO. All funds required by EBCO to fulfill its Pre-Opening Responsibilities shall be paid from the funds held by EBCO from the Letter of Credit or other funds provided by Marvel and/or UCO in accordance with the existing provisions of the Partnership Agreement.

4. CONSENT TO WITHDRAWAL. UCO and Universal hereby agree to permit

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EBCO to withdraw from the Venture thereby relieving and releasing EBCO, Earl and Barish in all respects from any future obligations which EBCO, Earl and/or Barish may have pursuant to the Partnership Agreement or Lease, as the case may be, notwithstanding anything contained in the Partnership Agreement or Lease to the contrary.

5. PROPRIETARY INTERESTS. It is hereby understood and agreed that all right, title and interest in and to the name "Marvel Mania" and the design, building plans and specifications, decor, furnishings, fixtures, equipment, insignia trade dress, memorabilia, uniforms, menus, recipes, merchandise and merchandise designs, advertising and promotional materials, intellectual property rights, budgets, concepts, themes, formats and elements which singly or in the aggregate are identified or were developed to be identified with the Hollywood Restaurant and/or any other Restaurant to be developed pursuant to the Venture Agreement shall be and remain the sole property of the Venture and neither EBCO, Earl, Barish nor any affiliate of EBCO, Earl or Barish, nor UCO, Universal, the Partnership nor any affiliate of said entities shall have or retain any rights, title or interest therein from and after the Grand Opening except in the case of UCO and the Partnership as may be expressly provided in the Partnership Agreement.

6. COOPERATION AND FURTHER ASSURANCES.Following the Withdrawal Date, the parties agree to reasonably cooperate with each other to ensure a continuity of operations of the Hollywood Restaurant and to carry out the interest and purpose of this Agreement. In connection therewith each party will, whenever and as often as it shall be reasonably requested to do so by the other, cause to be executed, acknowledged or delivered any and all such further information, instruments and documents as may be reasonably necessary or proper.

7. NO LITIGATION. As of the date hereof, neither EBCO, Earl nor Barish are aware of any actual or threatened demands, claims, actions or causes of action ("Claims") nor any facts or circumstances which may form the basis for any Claims associated with the Hollywood Restaurant except those Claims listed on the attached EXHIBIT "D" EBCO agrees to update EXHIBIT "D" on an ongoing basis between the date hereof and the Withdrawal Date. As of the date hereof, EBCO, Earl and Barish represent that except as otherwise enumerated on EXHIBIT "D", all Claims listed on EXHIBIT "D" are either notices of liens filed by contractors in the ordinary course of business in the construction industry, or claims by vendors for services or materials which have not yet been paid for (but which would not normally be paid as of the date hereof in the ordinary course of business in the construction industry).

8. INDEMNIFICATION BY MARVEL, MEG AND UCO. Marvel, MEG and UCO hereby jointly and severally indemnify and hold EBCO, Barish, Earl and their affiliates harmless from and against any and all actions, suits, claims, penalties, losses, damages and expenses, including reasonable attorney's fees, based upon or arising out of the performance or nonperformance by Marvel, MEG

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document or UCO of any of their respective obligations in the case of Marvel and MEG, under the Venture Agreement and/or the Memorandum and in the case of Marvel, MEG and UCO, under the Partnership Agreement, the Lease Agreement and/or this Assignment and Withdrawal Agreement.

9. INDEMNIFICATION BY EBCO. EBCO, Earl and Barish hereby indemnify and holds Marvel, MEG, UCO and their affiliates harmless from and against any and all actions, suits, claims, penalties, losses, damages and expenses, including reasonable attorney's fees, arising out of the performance or non-performance by EBCO, Earl and Barish of their respective obligations under the Venture Agreement, the Memorandum, the Partnership Agreement, the Lease Agreement and/or this Assignment and Withdrawal Agreement; provided, however, that neither EBCO, Earl or Barish shall have any liability hereunder for any loss caused by any act or failure to act if the loss suffered arises out of a mistake in judgment made in good faith, or if EBCO, Earl and/or Barish had reasonably believed that the action or lack of action giving rise to the loss was in the best interest of the Venture and/or Partnership; provided, further however that such exculpation from liability shall not apply to any liability for loss caused by any act or by the failure to do any act which arises out of the gross negligence, willful neglect, willful misconduct or fraud of EBCO, Earl or Barish. Notwithstanding anything contained herein to the contrary, EBCO, Earl and Barish shall not be liable to or obligated hereunder to indemnify Marvel, MEG and/or UCO with respect to matters pertaining to sales, revenue, income, profits, operating losses, operating expenses or partnership returns arising from the operation of the Hollywood Restaurant.

10. MANAGEMENT OF HOLLYWOOD RESTAURANT.

(a) UCO and Marvel agree that from and after the Withdrawal Date until June 30, 2000 (the "Initial Term"), UCO shall assume the day to day management of the Hollywood Restaurant which has heretofore been the responsibility of EBCO. Thereafter, the management agreement shall be automatically extended for successive one year terms (each, a "Successive Term"). During the Initial Term or any Successive Term in which UCO is acting as manager of the Hollywood Restaurant, UCO shall be entitled to collect one-half (1/2) of the Management Fee payable to the Venture pursuant to Section 14 of the Partnership Agreement and the remaining one-half (1/2) of the Management Fee shall continue to be paid to the Venture. During such period as a substitute manager selected by the Venture is managing the Hollywood Restaurant, the Venture (together with the substitute manager) shall be entitled to collect the entire Management Fee. Nothing contained herein shall alter the percentage interests of either of the Partners in the Partnership.

(b) UCO and any substitute manager (hereinafter collectively referred to as the "Manager") shall have the following management responsibilities pertaining to the Hollywood Restaurant (the "Management Requirements"):

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) The Manager shall provide to Marvel all of the reports (i.e., daily, weekly, monthly sales reports, status reports, etc.) and projections set forth in Section 7.4 of the Partnership Agreement.

(ii) The Manager shall fulfill the Venture's obligations under the first sentence of Section 7.1 and under Sections 7.2 and 7.3 of the Partnership Agreement.

(iii) The Manager shall give a true account of all business transactions arising out of or in connection with the business.

(iv) The Manger shall be responsible for day-to-day management activities including, without limitation, restaurant personnel decisions, procurement, and upkeep.

(v) The Manager shall maintain, on a continuing basis, a standard of entertainment, food quality and service, viewed together on an overall basis, consistent with budgetary limits established by the partners of the Partnership, which standard is appropriate for large themed restaurants catering to the same type of clientele as the Restaurant, such standard to be established on an objective basis and applied by an independent firm experienced in reviewing restaurant operations.

(vi) The Manager shall comply with all applicable health and safety standards.

(vii) Prior to each fiscal year, the partners of the Partnership shall mutually agree upon an operating and capital expenditures budget for the Hollywood Restaurant, including projected receipts and cash flows, for the upcoming fiscal year (the "Budget"). Universal shall submit to Marvel for approval, a proposed Budget for the fiscal year which begins in July, 1998. Marvel acknowledges and agrees that UCO will be allowed to manage the Hollywood Restaurant for the period prior to the fiscal year which begins July, 1998 without a fiscal budget. The expenses during the period prior to the fiscal year which begins in July, 1998, excluding costs directly related to the opening of the Restaurant, shall be used as a guideline for the creation of a Budget for the fiscal year which begins in July, 1999.

(viii) The Manager shall manage the Hollywood Restaurant in a manner consistent (in terms of both operations and theming) with the standards of the Marvel Mania chain and shall manage the Hollywood Restaurant in such a way as to protect the image fostered by Marvel with respect to the Marvel Characters. Notwithstanding the foregoing, if the Marvel Mania chain adopts standards which are inconsistent with, or more burdensome than, the manner in which the Hollywood Restaurant is then being managed, operated, or themed, the Manager shall not be required to conform to such Marvel Mania chain criteria if to do so would require a substantial expenditure or a substantial departure from the way in which the Hollywood has been operated or would

(c) (i) Marvel shall have the right to remove Universal as manager for cause during the Initial Term or any Successive Term. "Cause" as used herein shall mean a violation of any of the Management Requirements. Furthermore, the Manager may be removed if for each of any two successive fiscal years beginning with the July, 1999 to June, 2000 fiscal year, the Partnership has failed to achieve earnings before interest, taxes, depreciation and amortization ("EBITDA") within 15% of the approved EBITDA figures in the Budgets for each of such two (2) successive fiscal years, subject to reasonable adjustment to account for matters beyond the reasonable control of the Manager (including without limitation Acts of God or major decreases in theme park attendance). In order to cause the removal of the Manager pursuant to this sentence, notice must be given to the Manager within 60 days following the end of the particular two successive fiscal year period.

(ii) If UCO receives a notice of removal for cause (the "Removal Notice"), the Removal Notice shall become effective within 90 days of UCO's receipt of such notice unless UCO shall cure such violation within sixty (60) days of its receipt. There, however, shall be no cure period for failure to achieve the required level of EBITDA as specified in the second sentence of Subparagraph (c)(i) above. In the event a Removal Notice is issued, Marvel and UCO shall have forty-five (45) days from its transmittal to mutually agree upon a substitute manager. If Marvel and UCO are unable to agree upon a substitute manager within said forty-five (45) day period, Marvel shall have the right, subject to satisfaction of the Manager Criteria (as defined below) to select a substitute manager, subject to a limited approval right (as defined herein) by Universal. The Initial Term for the substitute manager shall be eighteen (18) months. UCO shall have the right to cause Marvel to remove and replace the substitute manager in the same manner and according to the same procedures as set forth above subject to a limited approval right by UCO of the successor manager in the event Marvel and UCO cannot mutually

agree upon a successor manager. The process outlined above may be repeated from time to time to the extent the current manager is replaced pursuant to this Paragraph. The Manager Criteria shall be as follows:

(1) Any substitute manager must have a history of successfully operating more than one themed or highly profiled restaurant, each having more than 250 seats.

(2) Any substitute manager must have a good reputation in the communities and businesses in which it operates.

The "limited approval right" as used herein shall mean the right to reject a proposed substitute manager if UCO can demonstrate by reasonable evidence that the Manager Criteria, when applicable, has not been reasonably satisfied.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) The parties hereby agree that they will have joint approval over the following aspects of the restaurant including the development of (i) the menu, (ii) the physical design of the restaurant, (iii) the merchandise mix in the retail area, (iv) the type of food, beverage and merchandise as well as the retail prices, and (v) advertising and promotional material, except Marvel shall have final approval over the foregoing to the extent any of the foregoing involves the use of a Marvel trademark, trade dress or character or involves changes by the Partnership which would result in the Hollywood Restaurant being in material deviation from the other restaurants in the Marvel Mania chain.

11. PARTIES. The parties hereto acknowledge that certain provisions of this Agreement are not intended to bind each and every party and that certain recitals, statements of facts, representations and warranties do not constitute the recitals, statement of facts or representations or warranties of each and every party; it being understood that a party shall be bound by only those respective provisions, recitals, statements of facts, representations and warranties, to the extent such provision, recital, statement of fact, representation or warranty expressly binds, limits or refers to such party by name; provided, however all parties are bound by all provisions of general applicability.

12. DEFAULT. An event of default under this Agreement shall be deemed to occur in the event any party hereto breaches or fails to comply with any agreement, obligation, representation, warranty or undertaking contained herein which is applicable to such party. Upon the occurrence of an event of default, a non-defaulting party hereto shall be entitled to exercise any and all rights and remedies available to such parties at law or in equity, including, without limitation, the right to terminate this Agreement, whereupon this Agreement shall be null and void and of no force and effect.

13. MISCELLANEOUS

(a) It is mutually agreed by the parties hereto that this Agreement contains the entire agreement of the parties with respect to the subject matter of this Agreement. This Agreement may not be amended, altered or modified except by a writing signed by the parties hereto.

(b) All notices under this Agreement shall be in writing and shall be delivered personally by overnight courier service, by telecopy or telefax or by certified or registered mail, postage prepaid, return receipt requested, to the parties at the addresses so specified for notice under the Venture Agreement.

(c) In the event that any provision of this Agreement shall be held to be invalid or unenforceable, the same shall not affect in any respect whatsoever the validity or enforceability of the remainder of this Agreement.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) Except as provided herein to the contrary, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective legal representatives and permitted successors and assigns.

(e) Except as herein specifically amended, modified and/or altered, the obligations of the parties hereto under the Venture Agreement, the Memorandum, the Partnership Agreement, the Lease Agreement and/or the Florida Letter of Intent shall remain in full force and effect.

(f) Nothing in this Agreement shall adversely affect UCO's rights or otherwise limit the Venture's, MEG's or Marvel Restaurant Corp.'s obligations. Without derogating from the generality of the prior sentence, Section 20 of the Partnership Agreement shall govern if either partner of the Partnership becomes the Defaulting Partner under the Partnership Agreement (including without limitation the right of the partner which is not the Defaulting Partner to exercise sole authority to determine all matters referred to in Section 10 of this Agreement); furthermore, if the Venture is the Defaulting Partner the aforementioned Sections 20 and 16.2 of the Partnership Agreement shall apply along with the other provisions of the Partnership Agreement applicable to the Management Fee and royalties and Section 10 of this Agreement will not apply. Notwithstanding the foregoing, Marvel shall retain the right to enforce the provisions of Subparagraph (b)(viii) and the final approval rights specified in Paragraph (d) both of Section 10 of this Agreement, even if Marvel's other rights under the aforementioned Section 10 cease.

(g) Upon the written request of UCO or Universal, MEG and/or Characters will petition the appropriate court for approval pursuant to Bankruptcy Code Section 365(a) of the assumption of the Partnership Agreement and each of its terms and conditions thereof except as such terms or conditions may be inconsistent with the terms and conditions set forth in this Agreement.

(h) This Agreement shall be governed and construed by and in accordance with the laws of the State of Florida.

(i) The terms and provisions of this Agreement shall survive the withdrawal of EBCO from the Venture.

(j) All section headings used in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement itself.

(k) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same agreement.

(1) For purposes of this Agreement the term "Affiliate" shall mean, with respect to any entity or person, any natural person or firm,

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document corporation, partnership, association, trust, or other entity which controls, is controlled by or under common control with the subject entity; a natural person or entity which controls an affiliate under the foregoing shall also be deemed to be an Affiliate of such entity. For purposes hereof, the term "control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of any such entity or the power to veto policy decisions of such entity, whether through the ownership of voting securities, equity interests, by contract or otherwise.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

MARVEL RESTAURANT VENTURE CORP., a Delaware corporation

By: ------

MARVEL ENTERTAINMENT GROUP, INC., a Delaware corporation

By: ------

MARVEL CHARACTERS, INC., a Delaware corporation

By: ------

EBCO MANAGEMENT, INC., a Florida corporation

By: ------

------ROBERT EARL

UNIVERSAL STATION, INC., a California corporation

By: ------

UNIVERSAL STUDIOS, INC., a Delaware corporation

By: ------

EBCO MANAGEMENT, INC., a Florida corporation

By: ------

------ROBERT EARL

------KEITH BARISH

UNIVERSAL STATION, INC., a California corporation

By:

UNIVERSAL STUDIOS, INC., a Delaware corporation

By: ------

EBCO MANAGEMENT, INC., a Florida corporation

By: ------

------ROBERT EARL

------KEITH BARISH

UNIVERSAL STATION, INC., a California corporation

By: ------

UNIVERSAL STUDIOS, INC., a Delaware corporation

By: ------

ASSIGNMENT OF PARTNERSHIP INTEREST

THIS ASSIGNMENT OF PARTNERSHIP INTEREST is dated ,1998 from EBCO MANAGEMENT, INC., a Florida corporation ("Assignor") in favor of ("Assignee").

WITNESSETH:

WHEREAS, Assignor is a general partner in M RESTAURANT VENTURE, a Florida general partnership (the "Venture") formed pursuant to a Joint Venture Agreement dated as of December 9, 1994, between Assignor and Marvel Restaurant Venture Corp. (the "Venture Agreement"); and

WHEREAS, Assignor desires to assign to Assignee all of Assignor's right, title, interest, benefits and privileges (the "Interest") in and to the Venture, and Assignee desires to accept such assignment.

NOW, THEREFORE, in consideration of the mutual promises contained herein, Assignor and Assignee, intending to be legally bound, hereby agree as follows:

1. Assignor does hereby convey, transfer, set over and assign to Assignee all of Assignor's right, title, interest, benefit and privileges in the Venture, as well as all of the rights, privileges and obligations relating thereto from and after the date hereof

2. This Assignment of Partnership Interest is being executed by Assignor pursuant to and in accordance with that certain Assignment and Withdrawal Agreement between Assignor, Marvel Restaurant Venture Corp., Marvel Entertainment Group, Inc., Robert Earl and Keith Barish dated as of the day of 1998, the terms and conditions of which are herein incorporated by reference.

3. Assignor hereby represents and warrants that:

(a) Assignor is the sole owner of the Interest;

(b) The Interest has not been pledged or hypothecated in any manner;

(d) The Interest is being transferred free and clear of all liens, encumbrances and/or claim by third parties;

(e) Assignor has been granted full access to the

4. Assignor shall sign any and all documents reasonably requested by the Assignee, which may be reasonably necessary to consummate and properly document this Assignment.

IN WITNESS WHEREOF, the parties hereto have executed this Assignment this day of ______, 1998.

Signed, Sealed and Delivered EBCO MANAGEMIENT CORP., a Florida in the presence of: corporation

By: ------Print Name:

------Print Name:

ACCEPTANCE

The undersigned, being the Assignee described in the foregoing Assignment, hereby accepts the Interest hereby assigned and the terms and conditions of this Assignment.

------

By: ------

STATE OF FLORIDA : :SS: COUNTY OF :

The foregoing instrument was acknowledged before me this ______day of ______1998, by ______, the ______of EBCO MANAGEMENT CORP., a Florida corporation, who is personally known to me or has produced______as identification.

------Notary Public, State of Florida Print Name: ------My Commission Expires:

(Notary Seal)

EXHIBIT "B"

ASSIGNMENT OF AGREEMENTS

THIS ASSIGNMENT, made as of this day of 1998, by EBCO MANAGEMENT, INC., a Florida corporation (hereinafter called "Assignor") to U/MRV CO, a California general partnership (hereinafter called "Assignee").

BACKGROUND OF ASSIGNMENT

WHEREAS, Assignor and Marvel Restaurant Venture Corp., a Delaware corporation ("Marvel") formed Assignee pursuant to that certain Joint Venture Agreement dated as of December 9, 1994 (the "Venture Agreement") for purposes of constructing, developing, owning and operating restaurants, themed around comic book, cartoon and animation characters owned or licensed by an affiliate of Marvel; and

WHEREAS, pursuant to the Venture Agreement, Assignor was responsible for the day to day management of the Venture as the Managing Venturer and in connection therewith executed certain agreements, contracts, letters of intent, purchase orders, commitments, leases and other documents on behalf of the Venture but in the name of the Assignor in its capacity as the Managing Venturer and certain warranties, permits, approvals, authorizations, certificates and agreements from governmental agencies, boards and departments and conceptual design and building plans and specifications may have been issued and/or delivered for the benefit of the Venture but in the name of the Assignor, all as more fully described on EXHIBIT "A" attached hereto (collectively "Agreements and Approvals").

WHEREAS, on this date, Assignor has withdrawn from the Venture, assigned its interest therein and in connection therewith has relinquished all of its right, title, interest, benefits and privileges in the Venture and any of the Venture's property; and

WHEREAS, in connection with such withdrawal and assignment, the Assignor and Assignee desire to assign to Assignee all of the Agreements and Approvals which were executed, issued or delivered on behalf of or for the benefit of Assignee.

TERMS OF ASSIGNMENT

NOW, THEREFORE, in consideration of the obligations and promises contained herein and intending to be legally bound, Assignor does hereby covenant, agree, warrant, represent, assign, set over and transfer as set forth herein.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 5. Assignor hereby assigns, transfers and sets over unto Assignee all of its right, title and interest in and to the Agreements and Approvals and all the privileges and benefits

therefrom, including the right to sue for claims arising thereunder whether arising prior to or following the date hereof.

6. Assignor hereby represents that EXHIBIT "A" constitutes a true and complete list of all Agreements and Approvals and, if requested, Assignor shall deliver to Assignee such consents to this Assignment as Assignee deems reasonably necessary to carry out the purposes and intent of this Assignment.

7. This Assignment shall be governed by and construed according to the laws of the State of Florida.

IN WITNESS WHEREOF, Assignor has duly executed this assignment the day and year first above written.

EBCO MANAGEMIENT, INC., a Florida corporation

By: ------

STATE OF FLORIDA ) ) ss.: COUNTY OF ) ------

The foregoing instrument was acknowledged before me this ______day of ______1998 by ______, as ______of EBCO MANAGEMENT, INC., a Florida corporation, who personally appeared before me, is personally known to me or produced ______as identification.

Notary: ------[NOTARIAL SEAL] Print Name: ------Notary Public, State of Florida My commission expires: ------

"INTENTIONALLY OMITTED"

EXHIBIT "D"

CLAIMS

This Settlement Agreement is made and entered into this 31st day of July 1998 by and between NBA Properties, Inc. ("NBAP"); Marvel Entertainment Group, Inc. ("Marvel"), Fleer Corporation ("Fleer") and Skybox International, Inc. ("Skybox," and together with Marvel and Fleer collectively hereinafter "Debtors"); John J. Gibbons, chapter 11 trustee (the "Trustee") for the estates of the Debtors; and Panini, S.p.A. ("Panini"), a wholly-owned, non-debtor subsidiary of Marvel.

RECITALS

A. NBAP and Marvel entered into a license agreement dated July 21, 1995, as subsequently amended (the "License Agreement"), pursuant to which NBAP licensed to Marvel, and its wholly owned subsidiaries, Fleer, Skybox, and Panini (collectively the "Licensees") the non-exclusive right to use certain NBA player likenesses, trademarks and other intellectual property (the "NBA Marks"), which License Agreement expires on July 31, 1999.

B. Pursuant to the License Agreement, Marvel was obligated to make certain guaranteed royalty payments and advertising, media and promotional payments.

C. The Debtors filed separate petitions for reorganization under Chapter 11 of 11 U.S.C. ss.101, et seq. ("Bankruptcy Code") on December 27, 1996 (the "Petition Date") and the cases were procedurally consolidated (the "Bankruptcy Proceeding"). On November 17, 1997, the United States District Court for the District of Delaware withdrew the reference to the Bankruptcy Court, and the Bankruptcy Proceeding is now pending in the United States District Court for the District of Delaware, (the "Court" or the "Delaware Court") Civil No. 97-638 (RRM).

D. On December 22, 1997, John J. Gibbons was appointed Trustee for all of the Debtors and his appointment was approved by the Court on the same date.

E. It is NBAP's position that amounts paid by the Debtors under the License Agreement are less than the guaranteed minimum royalty payments and advertising, media and promotional payments due thereunder, and that the Debtors are therefore in default under their obligations pursuant to the License Agreement (the "Default"), which positions the Debtors and the Trustee dispute.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document F. It is NBAP's position that Marvel, Fleer, Skybox and Panini are jointly and severally liable for all amounts owed to NBAP under the License Agreement, including all payments claimed to be now in default and all amounts scheduled to become due through the expiration of the License Agreement, which position the Debtors, the Trustee and Panini dispute.

G. NBAP has asserted claims against the Debtors in the Bankruptcy Proceedings regarding the License Agreement that are the subject of Proofs of Claims, including, without limitation, claim numbers 584 through 589, inclusive.

H. On October 14, 1997, NBAP commenced a lawsuit against Panini, titled NBA Properties, Inc. v. Panini S.p.A., Civ. No. 97-7603 (LAP) (the "Panini Litigation"), in the United States District Court for the Southern District of New York ("Southern District"), in which NBAP seeks payment from Panini for substantially all of the obligations due to NBAP under the License Agreement through its date of expiration, including royalties.

I. On December 9, 1997, Marvel, as debtor-in-possession and prior to the appointment of the Trustee, commenced an adversary proceeding in the Delaware Court titled Marvel Entertainment Group, Inc. et al v. NBA Properties, Inc., Civ. No. 97-650 (RRM) (the "Adversary Proceeding"), seeking to enjoin further proceedings in the Panini Litigation.

J. It is the Trustee's position that the claims asserted by NBAP in the Panini Litigation are without merit and that the Panini Litigation is disruptive of and will interfere with the Bankruptcy Proceedings and the reorganization of the Debtors therein. Accordingly, the Trustee has continued the Adversary Proceeding.

K. The Official Committee of Unsecured Creditors in the Bankruptcy Proceeding (the "Committee"), has taken the position that certain sums that have been paid to unsecured

creditors, which may include payments to NBAP under the License Agreement pursuant to an Order of the Court dated December 27, 1996 (the "Ordinary Course Order"), were improperly paid and may be subject to disgorgement. The Committee has moved before the Court pursuant to Federal Rule of Civil Procedure 60(b) (the "60(b) Motion", and together with the Panini Litigation and the Adversary Proceeding, collectively, the "Litigations"), for relief from the Ordinary Course Order. The Committee has indicated that, upon the Court's approval of a certain settlement agreement effecting consensual amendments to the Plan, the Committee will consent to this Settlement Agreement and waive any objection to a motion for an Order of the Court approving this Settlement.

L. The Third Amended Plan of Reorganization (the "Plan") has been proposed by Toy Biz, Inc., and certain of the Secured Lenders(1) in the Bankruptcy

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Proceeding (the "Plan Proponents"). The Plan provides that the License Agreement is rejected. Upon Consummation, Toy Biz, Inc. will change its name to Newco and Newco will become the parent and sole shareholder of Marvel, Fleer and Skybox. Marvel will remain as the parent and sole shareholder of Panini. A confirmation hearing has been held by the Court, and by Order dated July 13, 1998, the Court has confirmed the Plan.

M. NBAP and Marvel, with the approval of the Trustee and in consultation with Fleer, Skybox, Panini and the Plan Proponents, recognize the mutual desirability of a continued licensing relationship between NBAP and Marvel as reorganized pursuant to the Plan. In addition, each of the parties to this Settlement Agreement desires to achieve final resolution of the various claims between them, and to avoid the cost and uncertainty of litigating those claims. In accordance with the foregoing, each of the parties to this Settlement Agreement have reached an amicable resolution of all of the disputes and claims between them pursuant to the terms and conditions set forth herein.

------(1) Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to those terms in the Third Amended Plan or any further amended plan.

AGREEMENT

NOW, THEREFORE, in consideration of their mutual promises and other good and valuable consideration, receipt of which is acknowledged, the parties intending to be bound, agree as follows:

1. The Amended License Agreement. Marvel, as authorized by the Trustee, and NBAP have amended the License Agreement upon the terms and conditions set forth in an amended license agreement, dated July 31, 1998, (the "Amended License Agreement") (attached hereto as Exhibit A) and in this Settlement Agreement. The Amended License Agreement shall be deemed to modify and replace all of the terms of the License Agreement. Marvel, the Trustee and NBAP further agree that the Amended License Agreement (or any modification thereof which is approved by the Trustee, the Plan Proponents, NBAP and the Court) shall be assumed (the "Assumption") by Marvel, and shall be binding upon Marvel, upon the Consummation Date of the Plan.

2. Effective Date of the Amended License Agreement. The effective date of the Amended License Agreement shall be the Consummation Date of the Plan; provided however that, subject to the occurrence of any one of the Contingencies as defined in paragraph 7 of this Settlement Agreement, NBAP and Marvel shall perform under the Amended License Agreement, and the obligations of the parties to the Amended License Agreement, including Marvel's earned and minimum royalty

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document obligations, shall accrue beginning on August 1, 1998, as if the Amended License Agreement was in full force and effect from that date; provided further however, that, to the extent the minimum guaranteed royalty obligations that accrue and become due and payable under the Amended License Agreement from August 1, 1998, until the Consummation Date of the Plan are in excess of those royalty obligations calculated under the royalty rate(s) in the Amended License Agreement, those excess payments shall be deferred to no later than the Consummation Date.

3. Payments. It is agreed, and the Order of Approval (as hereafter defined) shall provide, that as full and total cure of the Default and all other defaults (whether or not identified herein)

4 under the License Agreement payable upon the Assumption and effective date of the Amended License Agreement:

(i) On or before the Consummation Date, Newco will pay the sum of $11 million to NBAP, and it is agreed that this payment shall be the obligation of Newco and not of any other person or entity; and

(ii) On or before the Consummation Date, Newco and Panini will pay to Street Hoops International, NBA Entertainment, Inc., and NBAP, the amounts due under invoices for photography products and services and media purchases received by the Debtors, and/or Panini, in accordance with the schedule attached hereto as Exhibit B.

(iii) Effective upon receipt of the payments due under paragraph 3(ii) of this Settlement Agreement, NBAP hereby indemnifies and unconditionally holds harmless the Debtors, Panini, the Trustee, and Newco, and each of their respective past and present directors, officers, employees, attorneys, representatives, successors, assigns and agents, against any and all claims related to the License Agreement from Street Hoops International, NBA Entertainment, Inc., or any other NBAP affiliate, to the extent such claim survives the general releases granted in this Settlement Agreement.

(iv) Newco will pay the sum of $1 million to NBAP on the date one year after the Consummation Date (the "Consummation Anniversary Date") and NBAP will receive a recognized and allowed general Unsecured Claim in the aggregate amount of $20 million (the "Allowed Claim") in the Bankruptcy Proceeding. Any cash received by NBAP prior to the Consummation Anniversary Date in any distribution respecting the Allowed Claim shall be a credit first against the $1 million payment due NBAP under this paragraph 3(iv), and thereafter against Marvel's royalty obligations under the Amended License Agreement. NBAP shall use commercially reasonable efforts to liquidate any warrants received in any distribution respecting the Allowed Claim, and any net cash proceeds thereof received by NBAP prior to the Consummation Anniversary Date shall also be a credit first against the $1 million payment due NBAP under this paragraph 3(iv), and thereafter against Marvel's royalty obligations under the

Amended License Agreement. Any distribution received by NBAP respecting the Allowed Claim after receipt of the $1 million payment under this paragraph 3(iv), whether in cash or in net cash proceeds from the liquidation of warrants, shall be a credit against Marvel's royalty obligations under the Amended License Agreement.

(v) Subject to the occurrence of any one of the Contingencies and the voiding of this Settlement Agreement as set forth in paragraph 7 herein and the dismissal of the Panini Litigation, it is hereby agreed that all payments to NBAP prior to the Consummation Date of the Plan, whether pursuant to the License Agreement, interim agreements, paragraph 2 of this Settlement Agreement, Orders of the Court or otherwise, are final and irrevocable, and the Debtors, Newco, Panini and the Trustee waive and release any right to the repayment to the Debtors' estates or any successor thereto, including the Litigation Trust established pursuant to the Plan, of any money previously paid to NBAP and any right under Article 5 of the Bankruptcy Code to avoid and recover any transfer that may have been received by NBAP.

4. Approval of the Court. The Trustee, as soon as practicable after the execution of this Settlement Agreement, agrees to file with the Court a motion for an Order in a form agreeable to all of the parties to this Settlement Agreement (the "Order of Approval"): (i) approving this Settlement Agreement pursuant to Federal Rule of Bankruptcy Procedure 9019, (ii) that the Plan be deemed amended to reflect that the License Agreement has been assumed as modified by the Amended License Agreement and by the terms of this Settlement Agreement, and (iii) that the rejection of the License Agreement originally proposed in the Plan will be deemed withdrawn.

5. Dismissal of Litigations. Upon payment of the amounts set forth in paragraphs 3(i) and 3(ii) of this Settlement Agreement, the parties agree to dismiss and to cease any further prosecution of any of the Litigations or any other litigation now pending between them, in accordance with the schedule and terms set forth in this paragraph 5. In furtherance of this Settlement Agreement, it is agreed that no party shall further prosecute any of the Litigations against each other or against any other person or entity, except as follows:

(i) Upon payment of the amounts set forth in paragraphs 3(i) and 3(ii) of this Settlement Agreement, NBAP, Panini and Newco will execute and cause to

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document be filed in the Southern District of New York a stipulation of dismissal of the Panini Litigation in its entirety, pursuant to Federal Rule of Civil Procedure 41(a)(1)(ii) with prejudice and without costs to any party.

(ii) Within one business day of the execution of the stipulation of dismissal of the Panini Litigation by NBAP, Newco will execute and cause to be filed in the Delaware Court a notice of voluntary dismissal of the Adversary Proceeding in its entirety with prejudice and without costs to any party, pursuant to Federal Rule of Civil Procedure 41(a)(1)(i).

(iii) It is agreed and the Order of Approval shall provide that NBAP is released from any claims arising out of the 60(b) Motion, to the extent that any such claims survive the Assumption and the releases granted in this Settlement Agreement; provided however that the release shall be subject to the occurrence of any one of the Contingencies and the voiding of this Settlement Agreement as set forth in paragraph 7, and its sub-paragraphs i, ii, iii and v, but excepting the occurrence of the Contingency set forth in sub-paragraph 7(iv) and the voiding of the Agreement solely by reason of that Contingency, in which case the release shall survive the voiding of this Settlement Agreement.

(iv) Upon entry by the Court of the Order of Approval, NBAP agrees that it will withdraw its objection to the 60(b) motion, provided, however, that such withdrawal will be without prejudice to NBAP's rights to renew its objection solely in the event the release granted in paragraph 5(iii) fails to become or remain effective, pursuant to the provisos therein. Upon the non-occurence of all of the Contingencies set forth in paragraph 7 of this Settlement Agreement, NBAP's withdrawal of its objection to the 60(b) motion shall be with prejudice.

(v) Within 5 days of the execution of this Settlement Agreement, the parties will execute consent orders staying both the Panini Litigation and the Adversary Proceeding (or otherwise suspending them or placing them on inactive status as the courts may direct), and submit these consent orders for endorsement by the Southern District and the Delaware Court

respectively, which consent orders and resulting stays will terminate and be lifted by their own terms, without prejudice to any party to prosecute either of the matters, upon the occurrence of any one of the Contingencies and the voiding of this Settlement Agreement as set forth in paragraph 7 herein.

(vi) Upon the entry of the Order of Approval and upon payment of the amounts set forth in paragraphs 3(i) and 3(ii) of this Settlement Agreement, NBAP agrees that the Allowed Claim will constitute its entire claim in classes 4A through 4I of the Plan and NBAP waives and releases any other claims it has or may have in classes 4A through 4I of the Plan.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 6. Mutual General Release. Upon the entry of the Order of Approval and payment to NBAP of the amounts set forth in paragraph 3(i) and 3(ii) of this Settlement Agreement, NBAP, Debtors, the Trustee and Panini hereby mutually release, forever discharge, and, covenant not to sue one another, their past and present directors, partners, managers, officers, shareholders, agents, employees, attorneys, successors, assigns and any parent, subsidiary or affiliated corporations, partnerships and other entities, and each of them, separately and collectively, from and/or for any and all claims, liens, demands, causes of action, obligations, damages and liabilities, known or unknown, asserted or unasserted, direct or indirect that each has had in the past, or now has, or may have in the future against each other for, upon or by reason of any act, omission, or other matter, cause, or thing whatsoever, from the beginning of the world to the date hereof, including, without limitation, all matters arising directly or indirectly out of, or related in any way to the License Agreement, the Litigations, including, without limitation, those claims that are the subject of Proofs of Claims (including without limitation claim numbers 584 through 589, inclusive) filed against the Debtors in the Bankruptcy Proceeding, provided that:

(i) nothing in this mutual general release shall be construed as releasing, waiving or otherwise discharging claims relating to compliance with the terms and conditions of this Settlement Agreement, the Amended License Agreement or the Plan, or any agreement, instrument or other document to be executed as contemplated by those agreements or the Plan, and further provided that 8

(ii) nothing in this mutual general release shall be construed as releasing, waiving or otherwise discharging claims belonging to NBAP relating to any uses of NBAP's intellectual property not authorized by the terms of the License Agreement or the Amended License Agreement, and further provided that

(iii) nothing in this mutual general release shall be construed as releasing, waiving or otherwise discharging inter-company claims between the Debtors, Newco or Panini not related to the License Agreement.

7. Termination of Settlement Agreement. This Settlement Agreement shall be void ab initio and of no force and effect, the parties will revert to and retain all of their rights as of the date of this Settlement Agreement and nothing in this Settlement Agreement, the Motion or the Approval Order will be used to interpret the License Agreement, upon the happening of any of the following events (the "Contingencies"):

(i) A Qualified Transaction occurs.

(ii) The Court enters an Order denying the Trustee's motion for an Order of Approval (the "Denial Order") and such Denial Order becomes final and no longer appealable, or, in the event of a timely appeal, all avenues of appeal of the Denial Order are exhausted.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (iii) The Court's Order confirming the Plan is reversed on appeal and that reversal, or, in the case of remand a subsequent Order of the Court denying confirmation, becomes final and no longer appealable, or, in the event of a timely appeal, all avenues of appeal are exhausted.

(iv) NBAP does not receive the payments provided in paragraphs 3(i) and 3(ii) of this Settlement Agreement by December 15, 1998.

(v) The Consummation Date shall not have occurred on or before November 30, 1998, and either NBAP, the Plan Proponents or the Trustee provides written notice of intent to terminate and void this Settlement Agreement.

8. Termination for Non-Payment. NBAP may terminate the Amended License Agreement if the payments provided in Section 3 hereof are not made when due, upon written notice made within thirty days from a payment's due date. In the event of a termination of the Amended

License Agreement under this paragraph 8, the sell-off rights set forth in paragraph 14 of the Amended License Agreement shall not be applicable.

9. Representations And Warranties. The parties to this Settlement Agreement jointly and mutually represent and warrant to each other that as follows:

(i) that no other person or entity has any interest in the claims, demands, obligations, or causes of action arising out of the License Agreement, the Panini Litigation or the Adversary Proceeding and each of them have the sole right and exclusive authority to execute this Settlement Agreement, and that they have not sold, assigned, transferred, conveyed or otherwise disposed of any claims, demands, obligations, or causes of action arising out of the License Agreement or the Panini Litigation or the Adversary Proceeding.

(ii) that they were represented by counsel of their choice at the time of the execution of this Settlement Agreement, that they have relied upon the legal advice of their counsel, that the terms of the Settlement Agreement have been completely read and explained to them by their counsel, that the Trustee and responsible officials of each of the other parties have read this Settlement Agreement and that the terms of this Settlement Agreement are fully understood and voluntarily accepted by all of them.

(iii) that the persons signing below on their behalf have full right, power and authority to sign this Settlement Agreement.

10. Settlement Agreement Not An Admission. Nothing in this Settlement Agreement, the Motion or the Order of Approval shall be construed as an admission of the rights or liabilities of any entity, or of any other issue of fact or law. Nothing in this Settlement Agreement shall be used to interpret the Amended License Agreement.

Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 11. Confidentiality. The parties understand and acknowledge that the terms of the Amended License Agreement are confidential and it is agreed that no party shall divulge those terms to any third party except as may be required by law or to fulfill the terms of this Settlement Agreement or the Amended License Agreement and, to the extent any disclosure of the terms of the Amended License Agreement is necessary under the provisions of this paragraph, the party

10 making the disclosure will take all steps to minimize the scope of such disclosure, where possible making such disclosure only pursuant to an agreement of confidentiality with the third party to whom the terms are disclosed and/or, where disclosure is necessary in the course of litigation, pursuant to a protective order from the relevant court; and, prior to filing the Amended License Agreement with the Court, the Trustee shall obtain a Protective Order preserving the confidentiality of the terms of the Amended License Agreement and to permit its filing with the Court under seal.

12. Execution. This Settlement Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument, and it is further agreed that facsimile signatures by any party shall be deemed effective and binding for all purposes stated herein.

13. Settlement Agreement Binding. This Settlement Agreement shall be binding upon the parties and their successors and assigns.

WHEREFORE, the parties have signed this Settlement Agreement on the date first above written.

NBA PROPERTIES, INC.

By: _/s/ Harvey E. Benjamin____

Name: _Harvey E. Benjamin______

Title: _Senior VP______

MARVEL ENTERTAINMENT GROUP, INC.

By: _/s/ August J. Liguori______

Name: _August J. Liguori______

Title: _E.V.P.______

FLEER CORPORATION

By: _/s/ Michael K. Eastwood______

Name: _Michael K. Eastwood______

Title: __VP & Controller______

SKYBOX INTERNATIONAL, INC.

By: _/s/ Michael K.Eastwood______

Name: _Michael K. Eastwood______

Title: __VP & Controller______

PANINI, S.P.A.

By: __/s/ Aldo Hugo Sallustro______

Name: _Aldo Hugo Sallustro______

Title: _Managing Director______

_/s/ John J. Gibbons______John J. Gibbons, Chapter 11 Trustee for Marvel, Fleer and Skybox

5 This schedule contains summary financial information extracted from the Marvel Entertainment Group, Inc. Condensed Consolidated Balance Sheets and Statements of Operations. 0000874808 MARVEL ENTERTAINMENT GROUP, INC.
~~6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 23 0 107 12 31 184 68 20 460 468 0 0 0 1 (543) 460 203 203 150 150 46 0 13 (30) 2 (32) 0 0 0 (32) (0.31)~~
~~Copyright © 2012 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (0.31)~~