October 30, 1997

MARVEL DILEMMA

The remarkably complex negotiations to resolve the Marvel bankruptcy case continue to drag on. It appeared in mid-October that an agreement had been hammered out between the secured creditors, led by Chase Manhattan Bank, and the bondholder group that took control of Marvel earlier this year, led by Carl Icahn. That agreement failed, however, when Chase was unable to gain consent from a required 67% of the secured lender syndicate.

The direct cause of Chase's failure was the purchase by interests allied with Toy Biz, Inc. of 40% of Marvel's senior debt. Those interests, led by Toy Biz, Inc.'s primary stockholder Issac Perlmutter, now can block any agreement made between Icahn and Ch ase, barring intervention by U.S. Bankruptcy Judge Helen Balick. Instead, Toy Biz, Inc. has put forth an alternative proposal under which the secured creditors would receive $230 million in cash, plus Marvel's Panini subsidiary, and 40% of the stock in a combined Marvel/Toy Biz. The remaining 60% of the stock would be divided between existing Toy Biz stockholders (40%), and a convertible preferred stock issue (20%), the proceeds of which would be used to raise the $230 million being given to the banks. Under this plan it would appear that the existing Marvel stockholders would receive nothing.

The reaction from the Icahn camp to this proposal has been to file a series of lawsuits against all parties previously involved with Marvel, including Ronald O. Perelman, Chase Manhattan, Toy Biz, Inc. Issac Perlmutter, Avi Arad, the rest of the secured b anks, and Mark Dickstein of Dickstein Partners (the company that actually purchased the 40% of Marvel's secured bank debt). Among a plethora of other charges, the lawsuits allege the following:

1) That Ronald Pereleman improperly transferred Marvel's toy licensing rights to Toy Biz in 1993.

2) Perelman overleveraged the company by making expensive acquisitions (Fleer, Panini, Heroes World, Malibu, Welsh Publishing, and Skybox).

3) Perelman pledged the company's assets toward previously unsecured loans.

4) Perelman masterminded a series of unwarranted and collusive filings in bankruptcy court in order to keep control of Marvel.

5) Chase helped Perelman in collusive and improper activities that damaged Marvel.

6) That Dickstein improperly interfered with the settlement reached between Marvel and the banks.

The bottom line in all of this is that the Icahn group is seeking to recover damages from all the parties and remove the secured creditor status from the $710 million owed to the banks. They also want an immediate judgement that the 78% supervoting rights to Toy Biz, Inc., granted to Marvel when the toy license was originally transferred, should survive the change of ownership between Perelman and Icahn, and that this should thus give Icahn the right to immediately install his own Board of Directors for Toy Biz, Inc.

Opinions vary as to the specific motivations and strategies of all the parties involved, but Icahn makes it clear that Marvel is running dreadfully short of cash, and that the exodus of key personnel that has been ongoing since the beginning of the origin al Chapter 11 filing is now making Marvel's future operations questionable. Reports from within the comics industry indicate that Marvel has approximately $4 million in operating reserves remaining. Unless Chase (under debtor-in-possession statutes) or Icahn infuse more money into the company quickly, it is questionable as to how long the company can continue to function. At this point, however, it would appear that none of the parties involved is willing to provide additional funding.

The one person who could intervene effectively in this case is Judge Helen Balick. It has been rumored that she is ill with cancer, however, and has announced that she will be retiring in January. This might give some explanation as to why she has not acted to this point. Moves that she could have taken before, and could still take are to

1) Appoint a neutral Chapter 11 trustee,
2) Appoint a neutral Chapter 7 trustee, or
3) Allow Marvel to dismiss the existing voluntary Chapter 11 filing and to move the entire mess from Federal to State court.

Marvel filed an emergency motion with her court last week seeking a hearing within five working days, but to this point no new hearing date has been set. This seems to have been the catalyst for the Icahn lawsuits.

At this point Marvel faces a dangerous stalemate. No one seems to be able to make a deal. Meanwhile they are running out of cash. The only solution presently being put forth (Toy Biz) would wipe out an estimate $200 million investment Icahn and his group put into purchasing the bonds that secured the 80% of Marvel that they now own. Everyone involved readily admits that it is highly unlikely that Carl Icahn will let that much money slip away. But what will happen to Marvel? At this point no one knows.