Can Leo and Banon be recruited in the World of Ruin?

there's a flag on every item that lists it as "equipable with e the merit award", FF3usme calls it "Heavy Armor" i believe. if you to give Leo more equipment options, just add that tag to some relics.

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Re: Kefka's Tower
I think that the Tower itself might work okay, but I'm concerned about entering the final battle with them, since there's only 12 slots? I'm not sure. I've never messed around with any code there. You should test it.

Re: Colosseum
My guess is that it's a menu problem. Whoever coded the Colosseum probably put it together quickly, and since Leo/Banon weren't supposed to be there for it, they didn't double check that the Menu IDs matched the PC IDs. I'll bet if you can find the Menu-building code for the Colosseum's "Select character" screen, you can just swap Banon and Leo's ID numbers to fix the issue.