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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-13638
MARVEL ENTERPRISES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3711775
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
387 Park Avenue South, New York, NY 10016
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(Address of principal executive offices) (Zip Code)
212-696-0808
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(Registrant's telephone number, including area code)
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(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
--- ---
At July 22, 1999, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 33,532,159 shares of Common Stock.
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1999 1998
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $99,545 $43,691
Accounts receivable, net 40,839 50,312
Inventories, net 30,568 32,598
Income tax receivable 1,266 7,396
Deferred income taxes, net 538 538
Assets held for resale - 26,000
Deferred financing costs 1,374 8,281
Prepaid expenses and other 6,895 3,768
------------- ---------------
Total current assets 181,025 172,584
Goodwill and other intangibles, net 475,068 487,731
Molds, tools and equipment, net 16,276 15,548
Product and package design costs, net 6,860 5,909
Deferred charges and other assets 8,495 5,053
Deferred financing costs 9,976 -
Deferred income taxes, net 3,079 3,079
------------- ---------------
Total assets $700,779 $689,904
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $6,858 $7,294
Accrued expenses and other 49,322 70,672
Administrative claims payable 14,198 19,914
Unsecured creditors payable 8,281 8,096
Bridge loan payable - 200,000
------------- ---------------
Total current liabilities 78,659 305,976
------------- ---------------
Long-term liabilities
Senior Notes 250,000 -
Panini liability 27,000 27,000
Deferred income taxes 924 924
------------- ---------------
Total long-term liabilites 277,924 27,924
------------- ---------------
Total liabilities 356,583 333,900
Redeemable cumulative convertible
exchangeable preferred stock 179,537 172,380
Stockholders' equity
Common stock 408 408
Additional paid-in capital 215,035 215,035
Retained (deficit) earnings (17,829) 1,136
------------- ---------------
Total stockholders' equity before treasury stock 197,614 216,579
------------- ---------------
Treasury stock (32,955) (32,955)
------------- ---------------
Total stockholders' equity 164,659 183,624
------------- ---------------
Total liabilities, redeemable preferred stock and
stockholders' equity $700,779 $689,904
============= ===============
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</TABLE>
2
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<TABLE>
<CAPTION>
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
-------- -------- --------- -------
<S> <C> <C> <C> <C>
Net sales $61,510 $48,675 $136,768 $91,316
Cost of sales 30,831 25,780 63,481 49,013
-------- -------- --------- -------
Gross profit 30,679 22,895 73,287 42,303
Operating expenses:
Selling, general & administrative 24,521 14,469 48,323 28,691
Depreciation & amortization 3,720 4,612 7,166 7,750
Amortization of goodwill and other intangibles 6,482 207 12,774 373
-------- -------- --------- -------
Total operating expenses 34,723 19,288 68,263 36,814
-------- -------- -------- -------
Operating (loss) income (4,044) 3,607 5,024 5,489
Interest expense, net 7,070 56 14,420 123
-------- -------- -------- -------
(Loss) income before (benefit) provision for income taxes (11,114) 3,551 (9,396) 5,366
Income tax (benefit) provision (2,044) 1,445 1,070 2,184
-------- -------- -------- -------
(Loss) income before extraordinary expense ($9,070) $2,106 ($10,466) $3,182
-------- -------- -------- -------
Extraordinary expense, net of tax benefit of $1,021 -- -- 1,531 -
-------- -------- -------- -------
Net (loss) income ($9,070) $2,106 ($11,997) $3,182
-------- -------- -------- -------
Less: preferred dividend requirement 3,525 -- 6,968 --
-------- -------- -------- -------
Net (loss) income attributable to Common Stock ($12,595) $2,106 ($18,965) $3,182
-------- -------- -------- -------
Basic and dilutive earnings per share:
(Loss) income from continuing operations attributable
to Common Stock ($0.38) $0.08 ($0.52) $0.11
Extraordinary expense -- -- ($0.05) --
-------- -------- -------- -------
(Loss) income attributable to Common Stock ($0.38) $0.08 ($0.57) $0.11
-------- -------- -------- -------
Weighted average number of basic and diluted
shares outstanding 33,532 27,746 33,532 27,746
-------- -------- -------- -------
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MARVEL ENTERPRISES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months
Ended June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($11,997) $ 3,182
------------- -------------
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation & amortization 19,940 8,123
Amortization of bridge loan and bond offering costs 2,169 -
Deferred income taxes - (1,847)
Extraordinary expense, net 1,531 -
Change in assets & liabilities:
Decrease (increase) in accounts receivable 9,473 (6,917)
Decrease (increase) in inventories 2,030 (4,935)
Decrease in income tax receivable 6,130 16,477
Increase in prepaid expenses and other (3,127) (5,254)
Increase in deferred charges and other assets (4,194) -
Decrease in accounts payable (436) (1,646)
Decrease in accrued expenses and other (16,408) (1,924)
Increase in unsecured creditors payable 185 -
Decrease in administrative claims payable (5,716) -
------------- -------------
Total adjustments 11,577 2,077
------------- -------------
Net cash (used in) provided by operating activities (420) 5,259
------------- -------------
Cash flows from investing activities:
Purchases of molds, tools and equipment (5,784) (5,898)
Expenditures for product and package design costs (3,061) (2,437)
Other investments (110) (1,634)
Net proceeds from the sale of Fleer assets 22,885 -
Net proceeds from the sale of Colorforms assets - 2,786
------------- --------------
Net cash provided by (used in) investing activities 13,930 (7,183)
------------- --------------
Cash flows from financing activities:
Net proceeds from Senior Notes offering 239,038 -
Repayment of Bridge Facility (200,000) -
Stock warrants exercised 189 -
Insurance recovery 3,117 -
Net repayments under credit agreement - (3,000)
------------- -------------
Net cash provided by (used in) financing activities 42,344 (3,000)
------------- -------------
Net increase (decrease) in cash and cash equivalents 55,854 (4,924)
------------- -------------
Cash and cash equivalents, at beginning of period 43,691 7,596
------------- -------------
Cash and cash equivalents, at end of period $99,545 $2,672
------------- -------------
Supplemental disclosures of cash flow information
Interest paid during the period $14,579 $418
Income taxes, net, refunded during the period $4,782 $12,679
Non-cash transaction
Preferred stock dividends $6,968 -
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements.
</TABLE>
4
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited Condensed Consolidated Financial
Statements of Marvel Enterprises, Inc. (formerly Toy Biz, Inc.) and its
subsidiaries (collectively, the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The Condensed Consolidated Statement of Operations for the three and
six months ended June 30, 1998 and the Condensed Consolidated Statement of Cash
Flows for the six months ended June 30, 1998 do not include operations of Marvel
Entertainment Group, Inc. ("MEG"), which was acquired on October 1, 1998 (See
Note 2). The Condensed Consolidated Statement of Operations and the Condensed
Consolidated Statement of Cash Flow for the six months ended June 30, 1999 are
not necessarily indicative of those for the full year ending December 31, 1999.
For further information on the Company's historical financial results, refer to
the consolidated financial statements and footnotes thereto contained in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998
and the amendment to that report on Form 10-K/A, dated April 1, 1999, as filed
with the Securities and Exchange Commission.
2. ACQUISITION OF MARVEL
On October 1, 1998, pursuant to the Fourth Amended Joint Plan of
Reorganization (the "Plan") proposed by the senior secured lenders of MEG and
Toy Biz, Inc., MEG became a wholly owned subsidiary of Toy Biz, Inc. The
acquisition of MEG was accounted for using the purchase method of accounting.
The results of the acquired business are included in the Company's consolidated
results of operations as of October 1, 1998. Toy Biz, Inc. also changed its name
to Marvel Enterprises, Inc. on that date.
The following unaudited pro forma consolidated financial information
gives effect to the acquisition as if it occurred at the beginning of the period
presented. These pro forma results include certain adjustments, such as
increased amortization and interest expense, and do not reflect MEG's
reorganization items and are not necessarily indicative of the results that
would have been achieved had the acquisition occurred at the beginning of the
period. This financial information also does not include the results of
operations of Fleer/Skybox International ("Fleer"), MEG's subsidiary engaged in
the sale of sports and entertainment trading cards, or Panini S.p.A. ("Panini"),
MEG's Italian subsidiary engaged in the children's activity sticker and adhesive
paper businesses, during the six months ended June 30, 1998 (see note 3).
Six Months Ended
June 30, 1998
------------------
(in thousands,
except per share data)
Net sales $122,498
Net loss (21,719)
Preferred dividend 6,968
Basic/dilutive net loss attributable to common stock ($0.86)
5
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. ASSETS HELD FOR RESALE
On February 11, 1999, the Company sold substantially all of the
assets of Fleer for approximately $22.9 million, in cash, net of related fees
and closing adjustments. Proceeds from this transaction were partially used to
repay the bridge facility (See note 5) with the remainder used for working
capital purposes. The Company's results of operations for the periods presented
do not include the results of operations of Fleer.
The Company intends to dispose of Panini. The Company has recorded a
$27.0 million long-term liability equal to its guarantee of Panini's debt. The
Company anticipates disposing of Panini in 1999. The Company's results of
operations for the periods presented do not include the results of Panini.
6
<PAGE>
<TABLE>
<CAPTION>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
4. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
June 30, December 31,
1999 1998
---- ----
Description
-----------
Accounts receivable, net:
<S> <C> <C>
Accounts receivable $63,234 $75,235
Less allowances (22,395) (24,923)
-------------------- --------------------
Total $40,839 $50,312
==================== ====================
Inventories, net:
Toys:
Finished goods $23,257 $24,685
Component parts, raw materials and
Work-in-process 4,421 3,977
-------------------- --------------------
Total Toys $27,678 $28,662
Publishing:
Finished goods $632 $754
Component parts, raw materials and
Work-in-process 2,258 3,182
-------------------- --------------------
Total Publishing $2,890 $3,936
-------------------- --------------------
Total $30,568 $32,598
==================== ====================
Goodwill and other intangibles, net:
Goodwill $492,424 $492,424
Patents and other intangibles 3,837 3,726
Less accumulated amortization (21,193) (8,419)
-------------------- --------------------
Total $475,068 $487,731
==================== ====================
Accrued expenses and other:
Accrued advertising costs $917 $8,183
Accrued royalties 8,373 9,584
Inventory purchases 7,083 7,389
Deferred financing costs - 4,000
Income taxes payable 3,552 4,709
Deferred income taxes payable 2,693 2,693
Litigation trusts accrual 798 1,922
Other accrued expenses 25,906 32,192
-------------------- --------------------
Total $49,322 $70,672
==================== ====================
</TABLE>
7
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. DEBT FINANCING
To partially finance the acquisition of MEG, the Company obtained a
$200.0 million loan (the "Bridge Facility") from UBS AG, Stamford Branch ("UBS
AG") on October 1, 1998. The Bridge Facility bore interest at either the bank's
base rate (defined as the higher of the prime rate or the sum of 1/2 of 1% plus
the Federal Funds Rate) plus 5.50% or at the Eurodollar rate plus 6.50%.
On February 25, 1999, the Company completed a $250.0 million offering
of senior notes (the "Senior Notes") in a private placement exempt from
registration under the Securities Act of 1933 ("the Act") pursuant to Rule 144A
under the Act. Net proceeds of approximately $239.0 million were used to pay all
outstanding balances under the Bridge Facility and for working capital. The
Senior Notes are due June 15, 2009 and bear interest at 12% per annum. The
Senior Notes may be redeemed beginning June 15, 2004 for a redemption price of
106% of the principal amount, plus accrued interest. The redemption price
decreases 2% each year after 2004 and will be 100% of the principal amount, plus
accrued interest, beginning on June 15, 2007. In addition, 35% of the Senior
Notes may, under certain circumstances, be redeemed before June 15, 2002 at 112%
of the principal amount, plus accrued interest. Principal and interest on the
Senior Notes are guaranteed on a senior basis jointly and severally by each of
the Company's domestic subsidiaries. On July 21, 1999, the Company began an
exchange offer under which it offered to exchange the Senior Notes, which
contain restrictions on transfer, for an equal principal amount of registered,
transferable notes whose terms are identical in all other material respects to
the terms of the Senior Notes. The exchange offer expires on August 20, 1999.
In February 1999, in connection with the repayment of the Bridge
Facility and the termination of a revolving credit facility, the Company
recorded an extraordinary charge of approximately $1.5 million, net of tax
benefit, for the write-off of deferred financing costs associated with these two
facilities.
On April 1, 1999, the Company and Citibank, N.A. ("Citibank") entered
into an agreement for a $60.0 million Revolving Credit Facility ("Citibank
Credit Facility"). The Citibank Credit Facility bears interest at either the
bank's base rate (defined as the higher of the prime rate or the sum of 1/2 of
1% plus the Federal Funds Rate) plus a margin ranging from 0.75% to 1.25%
depending on the Company's financial performance or at the Eurodollar rate plus
a margin ranging from 2.25% to 2.75% depending on the Company's financial
performance. The Citibank Credit Facility requires the Company to pay a
commitment fee of 0.625% per annum on the average daily unused portion of the
facility unless there is at least $20.0 million outstanding borrowings in which
case the rate is 0.50% per annum for the amount outstanding above $20.0 million.
The Company has not borrowed under the Citibank Credit Facility. The amount
available under this facility is reduced by the amount of letters of credit
outstanding, which is approximately $1.2 million as of July 23, 1999. The
Citibank Credit Facility is secured by a lien on all of the Company's inventory
and receivables.
8
<PAGE>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. SHARES OUTSTANDING
The Condensed Consolidated Statement of Operations presents
operations of the Company for the three months and six months ended June 30,
1999. During the first six months of 1999, the Company issued 80,000 shares of
common stock as annual compensation to its non-employee directors and issued 16
shares of common stock upon the exercise of warrants. The total number of shares
of common stock outstanding as of June 30, 1999 is 33,532,143, excluding
treasury shares (assuming no conversion of the 8% cumulative convertible
exchangable preferred stock ("8% Preferred Stock") and no additional exercise of
any warrants or employee stock options); assuming conversion of all of the 8%
Preferred Stock, the number of shares outstanding at June 30, 1999 would have
been 52,184,538; assuming conversion of all of the 8% Preferred Stock and
exercise of all outstanding warrants, all remaining warrants required to be
issued by the Company under the Plan and all employee stock options, the number
of shares would have been 69,928,610.
7. SEGMENT REPORTING
Following the Company's acquisition of MEG, the Company realigned its
business into four divisions: Licensing, Publishing, Toys ("Toy Biz") and
Corporate.
The Marvel Licensing division licenses the Marvel characters for use
in television programs, motion pictures, destination-based entertainment (such
as theme parks), on-line media, consumer products and promotions.
The Marvel Publishing division publishes comic books and paperbacks
based upon the Company's library of over 3,500 characters as well as certain
licensed material.
The Toy Biz division designs, develops, markets and distributes both
innovative and traditional toys worldwide. The toy products fall into three
categories: toys based on the Company's characters, proprietary toys designed
and developed by the Company and toys based on properties licensed to the
Company by third parties.
The Corporate division monitors the three operating divisions,
manages external debt and equity holders, outlines business strategy and
generally conducts the corporate governance functions of the Company.
Set forth below is certain operating information for the divisions of the
Company.
Three months ended June 30, 1999
- --------------------------------
<TABLE>
<CAPTION>
Licensing Publishing Toys Corporate Total
-------- ---------- ---- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $7,139 $10,759 $43,612 $ - $61,510
Gross Profit 7,016 4,825 18,838 - 30,679
Operating Income (Loss) (67) 1,124 149 (5,250) (4,044)
EBITDA(1) 4,930 2,297 4,181 (5,250) 6,158
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
MARVEL ENTERPRISES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(unaudited)
Three months ended June 30, 1998
- --------------------------------
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $ - $ - $48,675 $ - $48,675
Gross Profit - - 22,895 - 22,895
Operating Income - - 3,607 - 3,607
EBITDA(1) - - 8,426 - 8,426
Six months ended June 30, 1999
- ------------------------------
Licensing Publishing Toys Corporate Total
--------- ---------- ---- --------- -----
(in thousands)
Net Sales $22,432 $21,159 $93,177 $ - $136,768
Gross Profit 22,179 9,412 41,696 - 73,287
Operating Income 8,261 2,366 2,247 (7,850) 5,024
EBITDA(1) 18,255 4,712 9,847 (7,850) 24,964
Six months ended June 30, 1998
- ------------------------------
Licensing Publishing Toys Corporate Total
-------- ---------- ---- --------- -----
(in thousands)
Net Sales $ - $ - $91,316 $ - $91,316
Gross Profit - - 42,303 - 42,303
Operating Income - - 5,489 - 5,489
EBITDA(1) - - 13,612 - 13,612
</TABLE>
(1) "EBITDA" is defined as earnings before extraordinary items, interest
expense, taxes, depreciation and amortization. EBITDA does not represent net
income or cash flow from operations as those terms are defined by generally
accepted accounting principles and does not necessarily indicate whether cash
flow will be sufficient to fund cash needs.
8. CONTINGENCIES
The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding and there can be no
10
<PAGE>
assurances, the Company believes that its legal proceedings and claims
(including those described below), individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition, results of
operations or cash flows.
Spider-Man Litigation. The Company's MEG and Marvel Characters, Inc.
subsidiaries (collectively, the "Marvel Parties") have been parties to a
consolidated case, concerning rights to produce and /or distribute a live action
motion picture based on the Spider-Man character in the Superior Court of the
State of California for the County of Los Angeles (the "Superior Court"), to
which Metro-Goldwyn Mayer Studios Inc. and two of its affiliates ("MGM"),
Columbia Tristar Home Video and related entities ("Sony"), Viacom International
Inc. ("Viacom") and others were also parties. In February 1999, the Superior
Court granted summary judgement to the Marvel Parties and dismissed MGM's
claims. In March 1999, MGM, Sony and the Marvel Parties settled all remaining
claims among themselves. In April 1999 the Superior Court ruled, following the
completion of a trial on the claims asserted by Viacom, that Viacom had no
rights in a motion picture based on the Spider-Man character. In July 1999,
Viacom filed an appeal from the judgement entered against it in the Superior
Court.
Wolfman v. New Line Cinema Corp. et al. On August 20, 1998, Marvin A.
Wolfman commenced an action in the United States District Court for the Central
District of California against New Line Cinema Corporation, Time Warner
Companies, Inc., the Company, MEG and Marvel Characters, Inc., and others. The
complaint alleges that the motion picture Blade, produced and distributed by New
Line pursuant to an agreement with MEG, as well as the Company's sale of related
action figure toys, infringes Wolfman's claimed copyrights and trademarks as the
author of the original stories featuring the Blade and Deacon Frost characters
(collectively, the "Work") and that Wolfman created the Work as an independent
contractor engaged by MEG. The relief sought by complaint includes a declaration
that the defendants have infringed Wolfman's copyrights, compensatory and
punitive damages, an injunction and various other forms of equitable relief. The
Company believes that each component of the Work was created for MEG as a "work
for hire" within the meaning of the copyright law and believes that all of
Wolfman's claims are without merit and intends to defend the action vigorously
if the action is allowed to proceed.
Prior to commencing his action in California, Wolfman had filed a
proof of claim in the bankruptcy cases of MEG and Marvel Characters, Inc.
asserting ownership rights to the Blade and Deacon Frost characters, among
others. On February 24, 1999, Wolfman and the Company entered into a stipulation
pursuant to which the United States District Court for the District of Delaware
will determine the issue of whether Wolfman or Marvel Characters, Inc. is the
rightful owner of Blade and Deacon Frost and a number of other characters. In
the context of this proceeding, the Company has sought a declaration that Marvel
Characters, Inc., not Wolfman, is the lawful owner of the rights claimed by
Wolfman.
Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
submitted to the Company for payment. While the amounts claimed are material to
the Company's financial position, the Company believes that the ultimate
resolution of these matters will not be material to the Company's financial
condition, results of operations or cash flows, although there can be no
assurance.
11
<PAGE>
Item 2.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURTIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The factors discussed under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" could cause actual results to differ materially from those contained
in forward-looking statements made in this form 10-Q Quarterly Report and in
oral statements made by authorized officers of the Company. When used in this
Form 10-Q, the words "intend", "estimate", "believe", "expect", and similar
expressions are intended to identify forward-looking statements. In addition,
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 Company's potential
need for additional financing, (ii) the Company's potential inability to
integrate Toy Biz's operations with those of MEG, (iii) the Company's potential
inability to successfully implement its business strategy, (iv) a decrease in
the level of media exposure or popularity of the Company's characters resulting
in declining revenues from products based on those characters, (v) the lack of
commercial success of properties owned by major entertainment companies that
have granted the Company toy licenses, (vi) the lack of consumer acceptance of
new product introductions, (vii) the imposition of quotas or tariffs on toys
manufactured in China as a result of a deterioration in trade relations between
the U.S. and China, (viii) changing consumer preferences, (ix) production delays
or shortfalls, (x) continued pressure by certain of the Company's major retail
customers to significantly reduce their toy inventory levels, (xi) the impact of
competition and changes to the competitive environment on the Company's products
and services, (xii) changes in technology (including uncertainties associated
with Year 2000 compliance), (xiii) changes in governmental regulation, and (xiv)
other factors detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
General
The Company operates in the licensing, comic book publishing and toy
businesses. The Company owns the copyrights to over 3,500 fictional characters,
including Spider-Man, X-Men, Captain America, Fantastic Four and The Incredible
Hulk. The Company operates through the following four divisions:
The Marvel Licensing division licenses the Marvel characters for use
in television programs, motion pictures, destination-based entertainment (such
as theme parks), on-line media, consumer products and promotions.
The Marvel Publishing division publishes comic books and paperbacks
based upon the Company's library of over 3,500 characters as well as certain
licensed material.
The Toy Biz division designs, develops, markets and distributes both
innovative and traditional toys worldwide. The toy products fall into three
categories: toys based on the Company's characters, proprietary toys designed
and developed by the Company and toys based on properties licensed to the
Company by third parties.
The Corporate division monitors the three operating divisions,
manages external debt and equity holders, outlines business strategy and
generally conducts the corporate governance functions of the Company.
The Company acquired Fleer and Panini in connection with the
acquisition of MEG on October 1, 1998. The Company sold Fleer in February 1999.
The Company does not intend to continue operating
12
<PAGE>
Panini. The results of operations of Fleer and Panini are not included in the
Company's consolidated results of operations for any period.
The Condensed Consolidated Statements of Operations and Cash Flows
for the three months and six months ended June 30, 1998 do not include the
Licensing and Publishing divisions which were acquired on October 1, 1998.
Results of Operations
Three months ended June 30, 1999 compared with the three months ended
- ---------------------------------------------------------------------
June 30, 1998
- -------------
The Company's net sales increased 26% to approximately $61.5 million
for the three months ended June 30, 1999 from approximately $48.7 million in the
corresponding 1998 period. The increase was due primarily to the inclusion of
approximately $7.1 million in sales from the Licensing division and
approximately $10.8 million in sales from the Publishing division in the 1999
period. The Licensing and Publishing divisions were acquired on October 1, 1998
and therefore were not included in results for the 1998 period. Toy Biz sales
decreased by approximately $5.1 million from the 1998 period to the 1999 period
primarily due to shipment of product related to the Godzilla feature film in the
1998 period that did not recur in the 1999 period, and a decline in the sales of
Marvel-related product, offset by sales of World Championship Wrestling ("WCW")
action figures, a product line that was introduced in 1999.
Gross profit increased 34% to approximately $30.7 million in the
three months ended June 30, 1999 from approximately $22.9 million in the
corresponding 1998 period. The inclusion of the Licensing and Publishing
divisions in 1999 accounted for approximately $7.0 million and approximately
$4.8 million, respectively, of the increase while gross profit from the Toy Biz
division decreased approximately $4.1 million. Gross profit as a percentage of
net sales increased to approximately 50% in the 1999 period from approximately
47% in the 1998 period. The Licensing and Publishing divisions produced gross
margins of approximately 98% and 45%, respectively. The gross profit margin for
the Toy Biz division decreased to 43% in the 1999 period from 47% in the 1998
period due primarily to a higher percentage of lower-margin goods sold during
the 1999 period.
Selling, general and administrative expenses increased 69% to
approximately $24.5 million or approximately 40% of net sales in the three
months ended June 30, 1999 from approximately $14.5 million or approximately 30%
of net sales in the three months ended June 30, 1998. The Licensing, Publishing
and Corporate divisions collectively accounted for approximately $9.9 million in
selling, general and administrative expense increases. Of this amount, $2.6
million was related to certain payments made in connection with the separation
of the Company's then Chief Executive Officer. In the aggregate, expenses for
the Toy Biz division remained relatively constant during the 1999 period at
approximately $14.6 million compared to approximately $14.5 million during the
1998 period.
Amortization of goodwill and other intangibles increased to
approximately $6.5 million in the quarter ended June 30, 1999 from approximately
$200,000 in the corresponding quarter of 1998 due to the goodwill created in the
MEG acquisition in October 1998 which is being amortized over 20 years.
Net interest expense of approximately $7.1 million was recorded in
the three months ended June 30, 1999 which consisted of approximately $7.9
million in interest and deferred financing costs attributable to the Senior
Notes, offset by approximately $800,000 in interest and other income.
Six months ended June 30, 1999 compared with the six months ended June 30, 1998
- -------------------------------------------------------------------------------
The Company's net sales increased 50% to approximately $136.8 million
for the six months ended June 30, 1999 from approximately $91.3 million in the
corresponding 1998 period. The increase was due primarily to the inclusion of
approximately $22.4 million in sales from the Licensing division and
approximately $21.2 million in sales from the Publishing division in the 1999
period. The Licensing and Publishing divisions were acquired on October 1, 1998
and therefore were not included in results for the
13
<PAGE>
1998 period. Toy Biz sales increased by approximately $1.9 million from the 1998
period to the 1999 period primarily due to sales of WCW action figures, a
product line that was introduced in 1999, offset by a decline in the sales of
Marvel-related product and shipment of product related to the Godzilla feature
film in the 1998 period that did not recur in the 1999 period.
Gross profit increased 73% to approximately $73.3 million in the six
months ended June 30, 1999 from approximately $42.3 million in the corresponding
1998 period. The inclusion of the Licensing and Publishing divisions in 1999
accounted for approximately $22.2 million and approximately $9.4 million,
respectively, of the increase while gross profit from the Toy Biz division
decreased approximately $600,000. Gross profit as a percentage of net sales
increased to approximately 54% in the 1999 period from approximately 46% in the
1998 period. The Licensing and Publishing divisions produced gross margins of
approximately 99% and 44%, respectively. The gross profit margin for the Toy Biz
division decreased to 45% in the 1999 period from 46% in the 1998 period due
primarily to a higher percentage of lower-margin goods sold during the 1999
period.
Selling, general and administrative expenses increased 68% to
approximately $48.3 million or approximately 35% of net sales in the six months
ended June 30, 1999 from approximately $28.7 million or approximately 31% of net
sales in the six months ended June 30, 1998. The Licensing, Publishing and
Corporate divisions collectively accounted for approximately $16.5 million in
selling, general and administrative expense increases. Of this amount, $2.6
million was related to certain payments made in connection with the separation
of the Company's then Chief Executive Officer. An increase of approximately $3.1
million in selling, general and administrative expenses for the Toy Biz division
resulted primarily from increased royalties for the WCW product sales and
additional advertising expenses to support Toy Biz' new mini-doll products and
WCW product lines in the 1999 period.
Amortization of goodwill and other intangibles increased to
approximately $12.8 million in the six months ended June 30, 1999 from
approximately $400,000 in the corresponding period in 1998 due to the goodwill
created in the MEG acquisition in October 1998 which is being amortized over 20
years.
Net interest expense of approximately $14.4 million was recorded in
the six months ended June 30, 1999 which consisted of approximately $10.8
million in interest and deferred financing costs attributable to the Senior
Notes, and approximately $5.4 million in interest and deferred financing costs
for the Bridge Facility, offset by approximately $1.8 million in interest and
other income.
In connection with the repayment of the Bridge Facility in 1999, the
Company recorded an extraordinary expense of approximately $1.5 million, net of
tax benefit, for the write-off of the Bridge Facility deferred financing costs.
The Company's effective tax rate for the six months ended June 30,
1999 was higher than the statutory rate due primarily to non-deductible
goodwill, other intangibles and state income taxes. The Company expects this to
continue. The Company has Net Operating Loss Carryforwards ("NOLs") of $35.3
million related to the acquisition of MEG. Benefits from the NOLs, if realized,
will be a reduction in goodwill in the period realized.
Liquidity and Capital Resources
Net cash used in operating activities was approximately $400,000 in
the first six months of 1999, while net cash provided by operating activities
was approximately $5.3 million in the first six months of 1998.
On February 11, 1999, the Company sold substantially all of the
assets of Fleer, for approximately $22.9 million, in cash, net of related fees
and closing adjustments. Proceeds from this transaction were partially used to
repay the Bridge Facility with the remainder used for working capital purposes.
14
<PAGE>
To partially finance the acquisition of MEG, the Company obtained a
$200.0 million Bridge Facility from UBS AG on October 1, 1998. The Bridge
Facility bore interest at either the bank's base rate (defined as the higher of
the prime rate or the sum of 1/2 of 1% plus the Federal Funds Rate) plus 5.50%
or at the Eurodollar rate plus 6.50%.
On February 25, 1999, the Company completed a $250.0 million Senior
Notes offering in a private placement exempt from registration under the Act
pursuant to Rule 144A under the Act. Net proceeds of approximately $239.0
million were used to pay all outstanding balances under the Bridge Facility and
for working capital. The Senior Notes are due June 15, 2009 and bear interest at
12% per annum. The Senior Notes may be redeemed beginning June 15, 2004 for a
redemption price of 106% of the principal amount, plus accrued interest. The
redemption price decreases 2% each year after 2004 and will be 100% of the
principal amount, plus accrued interest, beginning on June 15, 2007. In
addition, 35% of the Senior Notes may, under certain circumstances, be redeemed
before June 15, 2002 at 112% of the principal amount, plus accrued interest.
Principal and interest on the Senior Notes are guaranteed on a senior basis
jointly and severally by each of the Company's domestic subsidiaries. On July
21, 1999, the Company began an exchange offer under which it offered to exchange
the Senior Notes, which contain restrictions on transfer, for an equal principal
amount of registered, transferable notes whose terms are identical in all other
material respects to the terms of the Senior Notes. The exchange offer expires
on August 20, 1999.
On April 1, 1999, the Company and Citibank entered an agreement for a
$60.0 million Citibank Credit Facility. The Citibank Credit Facility bears
interest at either the bank's base rate (defined as the higher of the prime rate
or the sum of 1/2 of 1% plus the Federal Funds Rate) plus a margin ranging from
0.75% to 1.25% depending on the Company's financial performance or at the
Eurodollar rate plus a margin ranging from 2.25% to 2.75% depending on the
Company's financial performance. The Citibank Credit Facility requires the
Company to pay a commitment fee of 0.625% per annum on the average daily unused
portion of the facility unless there is at least $20.0 million outstanding
borrowings in which case the rate is 0.50% per annum for the amount outstanding
above $20.0 million. The Company has not borrowed under the Citibank Credit
Facility. The amount available under this facility is reduced by the amount of
letters of credit outstanding, which is approximately $1.2 million as of July
23, 1999. The Citibank Credit Facility is secured by a lien on all of the
Company's inventory and receivables.
The Company believes that it has sufficient funds available from cash
and cash equivalents, operating activities and borrowings under the Citibank
Credit Facility to meet peak working capital needs and capital expenditure
requirements.
Year 2000
Through June 30, 1999, the Company incurred Year 2000 ("Y2K")
conversion costs of approximately $2.0 million, and the Company expects to incur
an additional $500,000 in 1999. The Company is utilizing both internal and
external resources to upgrade or replace its software for Y2K compliance. The
Company anticipates completing the Y2K project by October 31, 1999.
During MEG's bankruptcy, the Licensing and Publishing divisions
received only nominal Y2K conversion attention. The Company has placed all of
its divisions on an accelerated program and has enlisted full time external
project management resources to supplement its efforts.
15
<PAGE>
A steering committee now monitors the Y2K program weekly. The Y2K
program's primary goal is to remedy critical systems in three key areas: 1)
Enterprise software for basic accounting and order execution; 2) legacy and
infrastructure (i.e. remaining systems, personal computers and telephones); and
3) third party (customers, vendors) status and contingency planning. A quality
assurance program will be initiated in the third quarter.
The expected cost of the project and the expected date on which the
Company will complete the Y2K modifications are only estimates. The Company is
currently not aware of any material issues of Y2K non-compliance with its
customers and suppliers. The worst-case scenarios would be manual performance of
all accounting functions and the loss of relationships with major customers
because of the inability of the Company's computers to interface with those of
its customers. The Company has not yet developed a contingency plan to assess
the likelihood of, and to address, the worst-case scenarios. If the Y2K project
is not completed on a timely basis, or if the Company's customers or suppliers
fail to address all the Y2K issues, it could have a material adverse impact on
the Company's operations. The Company currently believes that the Y2K issue will
not pose significant operational problems for the Company's computer systems.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
PART II. Other Information.
Item 1. Legal Proceedings
The Company is a party to certain legal actions described below. In
addition, the Company is involved in various other legal proceedings and claims
incident to the normal conduct of its business. Although it is impossible to
predict the outcome of any outstanding legal proceeding and there can be no
assurances, the Company believes that its legal proceedings and claims
(including those described below), individually and in the aggregate, are not
likely to have a material adverse effect on its financial condition, results of
operations or cash flows.
Spider-Man Litigation. The Marvel Parties have been parties to a
consolidated case, concerning rights to produce and /or distribute a live action
motion picture based on the Spider-Man character in the Superior Court of the
State of California for the County of Los Angeles, to which MGM, Sony, Viacom
and others were also parties. In February 1999, the Superior Court granted
summary judgement to the Marvel Parties and dismissed MGM's claims. In March
1999, MGM, Sony and the Marvel Parties settled all remaining claims among
themselves. In April 1999 the Superior Court ruled, following the completion of
a trial on the claims asserted by Viacom, that Viacom had no rights in the
Spider-Man character. In July 1999, Viacom filed an appeal from the judgement
entered against it in the Superior Court.
Wolfman v. New Line Cinema Corp. et al. On August 20, 1998, Marvin A.
Wolfman commenced an action in the United States District Court for the Central
District of California against New Line Cinema Corporation, Time Warner
Companies, Inc., the Company, MEG and Marvel Characters, Inc., and others. The
complaint alleges that the motion picture Blade, produced and distributed by New
Line pursuant to an agreement with MEG, as well as the Company's sale of action
figure toys, infringes Wolfman's claimed copyrights and trademarks as the author
of the Work and that Wolfman created the Work as an independent contractor
engaged by MEG. The relief sought by complaint includes a declaration that the
defendants have infringed Wolfman's copyrights, compensatory and punitive
damages, an injunction and various other forms of equitable relief. The Company
believes that each component of the Work was created for MEG as a "work for
hire" within the meaning of the copyright law and believes that all of Wolfman's
claims are without merit and intends to defend the action vigorously if the
action is allowed to proceed.
16
<PAGE>
Prior to commencing his action in California, Wolfman had filed a
proof of claim in the bankruptcy cases of MEG and Marvel Characters, Inc.
asserting ownership rights to the Blade and Deacon Frost characters, among
others. On February 24, 1999, Wolfman and the Company entered into a stipulation
pursuant to which the United States District Court for the District of Delaware
will determine the issue of whether Wolfman or Marvel Characters, Inc. is the
rightful owner of Blade and Deacon Frost and a number of other characters. In
the context of this proceeding, the Company has sought a declaration that Marvel
Characters, Inc., not Wolfman, is the lawful owner of the rights claimed by
Wolfman.
Administration Expense Claims Litigation. The Company has initiated
litigation contesting the amount of certain Administration Expense Claims
submitted to the Company for payment. While the amounts claimed are material to
the Company's financial position, the Company believes that the ultimate
resolution of these matters will not be material to the Company's financial
condition, results of operations or cash flows, although there can be no
assurance.
Item 2. Exhibits and Reports on Form 8-K.
a) Exhibits. See the Exhibits Index immediately below.
Exhibits No.
-------------
Exhibit 10.1 Employment Agreement between the Company
and Robert S. Hull, dated as of February
15, 1999.
Exhibit 10.2 Employment Agreement between the Company
and Alan Fine, dated as of March 1,
1999.
Exhibit 10.3 Separation Agreement made on July 16,
1999 by and between Eric Ellenbogen and
the Company.
Exhibit 10.4 Employment Agreement between the Company
and F. Peter Cuneo, dated as of July 19,
1999.
Exhibit 12 Statement re: Computation of Ratios
dated as of June 30, 1999.
Exhibit 27 Financial Data Schedule.
b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter
ended June 30, 1999.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
MARVEL ENTERPRISES, INC.
(Registrant)
Dated: August 6, 1999 By: /s/ Robert S. Hull
----------------------------
Robert S. Hull
Executive Vice President and
Chief Financial Officer
18
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of February 15, 1999, between Marvel
Enterprises, Inc., a Delaware corporation (the "Company") and Robert Stuart Hull
(the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. Employment, Duties and Acceptance.
----------------------------------
1.1 Employment, Duties. The Company hereby employs the Executive for
the Term (as defined in Section 2.1), to render exclusive and full-time services
to the Company as Senior Vice President and Chief Financial Officer or in such
other executive position as may be mutually agreed upon by the Company and the
Executive. The Executive shall report solely to the Company's Chief Executive
Officer and Board of Directors and shall perform such other duties consistent
with such positions as may be assigned to the Executive by the Company's Chief
Executive Officer or Board of Directors.
1.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment and to use the Executive's professional efforts, skill and
ability to promote the Company's interests. The Executive further agrees to
accept election, and to serve during all or any part of the Term, as an officer
or director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed by the Executive hereunder
shall be performed primarily at the principal executive office of the Company in
New York City, subject to reasonable and customary travel requirements on behalf
of the Company.
813581.8
<PAGE>
2. Term of Employment
------------------
2.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence on February 15, 1999 and shall end on
February 15, 2002 (the "Expiration Date"). The Term shall end earlier than the
Expiration Date if sooner terminated pursuant to Section 4 hereof. The
Expiration Date shall be automatically postponed for one year, and the Term
shall be automatically extended by one year, unless either party hereto provides
the other party with written notice, not later than sixty days prior to the
Expiration Date, of its election not to permit the Term to be so extended, and
the Expiration Date shall thereafter be automatically postponed for one
additional year and the Term shall thereafter be automatically extended by one
additional year, on each subsequent anniversary of the date of this Agreement,
unless either party provides the other party with written notice, not later than
sixty days prior to such subsequent anniversary of the date of this Agreement,
of its election not to permit the Term to be so extended.
3. Compensation; Benefits.
-----------------------
3.1 Salary. As compensation for all services to be rendered pursuant
to this Agreement, the Company agrees to pay the Executive during the Term a
base salary, payable bi-weekly in arrears, at the annual rate of $285,000 until
February 14, 2000, $313,500 during the period February 15, 2000 through February
14, 2001 and $345,000 during the period February 15, 2001 through the Expiration
Date, less such deductions or amounts to be withheld as required by applicable
law and regulations and deductions authorized by the Executive in writing (the
"Base Salary").
3.2 Bonus. In addition to the amounts to be paid to the Executive
pursuant to Section 3.1 hereof, the Executive will be eligible to receive a
bonus with respect to each fiscal year of the Term based upon the attainment of
performance goals set by the Board of Directors (the "Bonus Performance Goals").
The Executive's target annual bonus amount shall be 50% of his base salary for
the year. In respect of 1999, the Executive's target bonus shall be $142,500.
The bonus shall be paid one-half in cash and one-half in common stock of the
Company valued at the average of the average daily high and low sale prices (or
of the closing bid and asked price if high and low sale prices are not
published) for such stock as quoted on the principal securities exchange on
which such stock is listed for trading for the last twenty trading days of the
fiscal year for which the bonus is awarded. The issuance of any shares of Common
Stock of the Company to the Executive pursuant to this Section 3.2 shall be
registered under the Securities Act of 1933, as amended (the "Securities Act").
813581.8
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<PAGE>
3.3 Business Expenses. The Company shall pay for or reimburse the
Executive for all reasonable first-class travel and other expenses actually
incurred by or paid by the Executive during the Term in the performance of the
Executive's services under this Agreement, including the cost and expense
associated with the use (including related personal use) of a cellular
telephone, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers.
3.4 Vacation. During the Term, the Executive shall be entitled to a
vacation period or periods of four (4) weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a calendar year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its executive employees generally,
together with executive medical benefits for the Executive, as from time to time
in effect for executive employees of the Company generally.
3.6 Additional Benefits. During the Term, the Executive shall be
entitled to such other benefits as are specified in Schedule I to this
Agreement.
4. Termination.
------------
4.1 Death. If the Executive shall die during the Term, the Term
shall terminate immediately.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's principal services hereunder for
(i) a period of six consecutive months or (ii) for shorter periods aggregating
six months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of six months, by
written notice to the Executive (but before the Executive has recovered from
such disability), terminate the Term.
4.3 Cause. The Term may be terminated by the Company upon notice to
the Executive upon the occurrence of any event constituting "Cause" as defined
herein. As used herein, the term "Cause" means: (i) the Executive's willful and
intentional failure or refusal to perform or observe any of his material duties,
responsibilities or obligations set forth in this
813581.8
-3-
<PAGE>
Agreement; provided, however, that the Company shall not be deemed to have Cause
pursuant to this clause (i) unless the Company gives the Executive written
notice that the specified conduct has occurred and making specific reference to
this Section 4.3(i) and the Executive fails to cure the conduct within thirty
(30) days after receipt of such notice; (ii) breach by the Executive of any of
his obligations under Section 5 hereof; (iii) any willful and intentional acts
of the Executive involving malfeasance, fraud, theft, misappropriation of funds,
embezzlement or material dishonesty affecting the Company; or (iv) the
Executive's conviction of, or plea of guilty or nolo contendre to, an offense
which is a felony in the jurisdiction involved.
4.4 Permitted Termination by the Executive. (a) The Term may be
terminated by the Executive upon notice to the Company of any event constituting
"Good Reason" as defined herein. As used herein, the term "Good Reason" means
the occurrence of any of the following, without the prior written consent of the
Executive: (i) assignment of the Executive to duties materially inconsistent
with the Executive's positions as described in Section 1.1 hereof, or any
significant diminution in the Executive's duties or responsibilities, other than
in connection with the termination of the Executive's employment for Cause or
disability or by the Executive other than for Good Reason; (ii) any material
breach of this Agreement by the Company which is continuing;(iii) a change in
the location of the Executive's principal place of employment to a location
other than as specified in Section 1.3 hereof; or (iv) the occurrence of a Third
Party Change in Control (as defined in Section 4.5(d) provided, however, that
the Executive shall not be deemed to have Good Reason pursuant to clauses (i)
and (ii) above unless the Executive gives the Company written notice that the
specified conduct or event has occurred and the Company fails to cure such
conduct or event within thirty (30) days of receipt of such notice.
(b) The Term may be terminated by the Executive at any time by
giving the Company a notice of termination specifying a termination date no less
than one year after the date the notice is given.
4.5 Severance. (a) If the Term is terminated pursuant to Section
4.1, 4.2 or 4.3 hereof, or by the Executive other than pursuant to Section
4.4(a), the Executive shall be entitled to receive his Base Salary, bonus and
any additional benefits provided hereunder at the rates provided in Sections 3.1
and 3.6 hereof to the date on which such termination shall take effect. If the
Term is terminated by the Executive pursuant to Section 4.4(b), the Executive
shall also be entitled to receive a pro rata portion (based on time) of the
annual bonus for the year in which the termination date occurs (a "Pro Rata
Bonus"). The pro
813581.8
-4-
<PAGE>
rata bonus to which the Executive is entitled, if any, shall be determined by
reference to the attainment of the performance goals referred to in Section 3.2
as of the end of the fiscal year in which termination of employment occurs and
shall be paid when bonuses in respect of that year are generally paid to the
Company's other executives. One-half of pro rata bonus, if any, shall be paid in
common stock of the Company (registered under the Securities Act) and one-half
in cash as provided in Section 3.2.
(b) Except as provided in Section 4.5(c), if the Term is terminated
by the Executive pursuant to clauses (i), (ii) or (iii) of Section 4.4(a) or by
the Company other than pursuant to Section 4.1, 4.2 or 4.3, the Company shall
continue thereafter to provide the Executive (i) payments of Base Salary in the
manner and amounts specified in Section 3.1 until the first anniversary of the
date of termination, (ii) if termination occurs prior to the time that the bonus
for 1999 is paid, a bonus in the amount of $142,500 and if termination occurs at
any time after a bonus has been awarded under Section 3.2 and prior to the time
that the bonus has been paid, the amount of that bonus, (iii) the Pro Rata Bonus
for the year in which termination occurs and (iv) fringe benefits in the manner
and amounts specified in Section 3.5 until the earlier of the Expiration Date,
the period ending on the date the Executive begins work as an employee or
consultant for any other entity or twelve (12) months after the date of
termination. In addition, all equity arrangements provided to the Executive
hereunder or under any employee benefit plan of the Company shall continue to
vest for the period specified in clause (iv) of this Section 4.5(b). The Pro
Rata Bonus to which the Executive is entitled, if any, shall be calculated and
paid in the manner described in Section 4.5(a). Bonuses payable pursuant to this
Section 4.5(b), other than the Pro Rata Bonus, shall be payable in the manner
described in Section 3.2 within 30 days after the date of termination. The
Executive shall have no duty or obligation to mitigate the amounts or benefits
required to be provided pursuant to this Section 4.5(b), nor shall any such
amounts or benefits be reduced or offset by any other amounts to which Executive
may become entitled; provided, that if the Executive becomes employed by a new
employer or self-employed prior to the earlier of the Expiration Date or twelve
(12) months after the date of termination, up to one-half of the Base Salary
payable to the Executive pursuant to this Section 4.5(b) shall be reduced by an
amount equal to the amount earned from such employment with respect to that
period (and the Executive shall be required to return to the Company, without
interest, any amount by which such payments pursuant to Section this 4.5(b)
exceed the Base Salary to which the Executive is entitled after giving effect to
that reduction) and, if the Executive becomes eligible to receive medical or
other welfare benefits under another employer provided plan, the corresponding
medical and other welfare benefits provided under this Section 4.5(b) shall
813581.8
-5-
<PAGE>
be terminated. As a condition to the Executive receiving the payments under
Section 4.5(b), the Executive agrees to permit verification of his employment
records and Federal income tax returns by an independent attorney or accountant,
selected by the Company but reasonably acceptable to the Executive, who agrees
to preserve the confidentiality of the information disclosed by the Executive
except to the extent required to permit the Company to verify the amount
received by Executive from other active employment.
(c) If the Term is terminated by the Executive pursuant to Section
4.4(a), or by the Company other than pursuant to Section 4.1, 4.2 or 4.3, and
the termination shall occur upon or following the occurrence of a Third Party
Change in Control (as defined in Section 4.5(d) or in contemplation of a Third
Party Change in Control, the Company shall thereafter provide the Executive (i)
an amount equal to two (2) times the sum of (x) the then current Base Salary and
(y) the average of the two most recent annual bonuses paid (treating any annual
bonus which is not paid as a result of the Executive's failure to attain the
Bonus Performance Goals as having been paid in an amount equal to zero) to the
Executive during the Term (or if only one annual bonus has been paid, the amount
of that annual bonus, and if that termination occurs prior to the time at which
the bonus for 1999 is paid,$142,500), to be paid in a lump sum within 30 days
after the date of termination, and (ii) fringe benefits in the manner and
amounts specified in Section 3.5 until twelve (12) months after the date of
termination or, with respect to medical and other welfare benefits, when the
Executive becomes eligible to receive medical or other welfare benefits under
another employer provided plan if sooner than twelve (12) months after the date
of termination. In addition, all equity arrangements provided to the Executive
hereunder or under any employee benefit plan of the Company shall continue to
vest until twelve (12) months after the date of termination unless vesting is
accelerated upon the occurrence of the Third Party Change in Control as
described in Schedule I.
(d) For purposes of this Agreement, a Third Party Change in Control
shall be deemed to have occurred if (i) any "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than an Excluded Person or Excluded Group
(as defined below) (hereinafter, a "Third Party"), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act), directly
or indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then outstanding securities
entitled to vote in the election of directors of the Company, (ii) the Company
is a party to any merger, consolidation or similar transaction as a result of
which the shareholders of the Company immediately prior to such transaction
beneficially
813581.8
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own securities of the surviving entity representing less than fifty percent
(50%) of the combined voting power of the surviving entity's outstanding
securities entitled to vote in the election of directors of the surviving entity
or (iii) all or substantially all of the assets of the Company are acquired by a
Third Party. "Excluded Group" means a "group" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) that (i) includes one or more Excluded
Persons; provided that the voting power of the voting stock of the Company
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such Excluded Persons (without attribution to such Excluded
Persons of the ownership by other members of the "group") represents a majority
of the voting power of the voting stock "beneficially owned" (as such term is
used in Rule 13d-3 promulgated under the Exchange Act) by such group or (ii)
exists solely by virtue of the fact that the members of such group are parties
to the Stockholders' Agreement, dated as of October 1, 1998, by and among the
Company, Isaac Perlmutter, Avi Arad, Mark Dickstein, The Chase Manhattan Bank,
Morgan Stanley & Co. Incorporated, Whippoorwill Associates Incorporated and
various other stockholders of the Company, as that agreement may be amended from
time to time (the "Stockholders Agreement"). "Excluded Person" means (i) while
the Stockholders Agreement is in effect in substantially its current form, any
person or entity who or which is a party to the Stockholders Agreement as of the
Effective Date and any affiliate of such a party to the Stockholders Agreement
who becomes a party to the Stockholders Agreement, and (ii) Isaac Perlmutter and
Avi Arad or any of their affiliates.
(e)(i) If any payment or benefit (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to
the Executive or for the Executive's benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise in connection
with, or arising out of, the Executive's employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Parachute Payment" or "Parachute Payments"), would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive will be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties,
other than interest and penalties imposed by reason of the Executive's failure
to file timely a tax return or pay taxes shown to be due on the Executive's
return), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an
813581.8
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<PAGE>
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Parachute Payments.
(ii) An initial determination as to whether a Gross-Up Payment
is required pursuant to this Agreement and the amount of such Gross-Up Payment
shall be made at the Company's expense by the Company's regular outside auditors
(the "Accounting Firm"). The Accounting Firm shall provide its determination
(the "Determination"), together with detailed supporting calculations and
documentation to the Company and the Executive within ten days of the
Termination Date if applicable, or promptly upon request by the Company or by
the Executive (provided the Executive reasonably believes that any of the
Parachute Payments may be subject to the Excise Tax) and if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Parachute Payment or Parachute Payments, it shall furnish the Executive with an
opinion reasonably acceptable to the Executive that no Excise Tax will be
imposed with respect to any such Parachute Payment or Parachute Payments. Within
ten days of the delivery of the Determination to the Executive, the Executive
shall have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 4.5(e)(ii) shall be paid
by the Company to the Executive within ten days of the receipt of the Accounting
Firm's determination notwithstanding the existence of any Dispute. If there is
no Dispute, the Determination shall be binding, final and conclusive upon the
Company and the Executive subject to the application of Section 4.5(e)(iii)
below. The Company and the Executive shall resolve any Dispute in accordance
with the terms of this Agreement.
(iii) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, the parties acknowledge that it is possible
that a Gross-Up Payment (or a portion thereof) will be paid which should not
have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion
thereof) which should have been paid will not have been paid (an
"Underpayment"). An Underpayment shall be deemed to have occurred (i) upon
notice (formal or informal) to the Executive from any governmental taxing
authority that the Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior taxable year) may be
increased by reason of the imposition of the Excise Tax on a Parachute Payment
or Parachute Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by
reason of determination by the Company (which shall include the position taken
by the Company, together with its consolidated group, on its federal income tax
return) or (iv) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall promptly, but in any event, at least five days
prior to the date
813581.8
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<PAGE>
on which the applicable government taxing authority has requested payment, pay
to the Executive an additional Gross-Up Payment equal to the amount of the
Underpayment plus any interest and penalties (other than interest and penalties
imposed by reason of the Executive's failure to file timely a tax return or pay
taxes shown to be due on the Executive's return) imposed on the Underpayment. An
Excess Payment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed upon a Parachute
Payment or Parachute Payments (or portion thereof) with respect to which the
Executive had previously received a Gross-Up Payment. A "Final Determination"
shall be deemed to have occurred when the Executive has received from the
applicable government taxing authority a refund of taxes or other reduction in
the Executive's tax liability by reason of the Excise Payment and upon either
(x) the date a determination is made by, or an agreement is entered into with,
the applicable governmental taxing authority which finally and conclusively
binds the Executive and such taxing authority, or in the event that a claim is
brought before a court of competent jurisdiction, the date upon which a final
determination has been made by such court and either all appeals have been taken
and finally resolved or the time for all appeals has expired or (y) the statute
of limitations with respect to the Executive's applicable tax return has
expired. If an Excess Payment is determined to have been made, the amount of the
Excess Payment shall be treated as a loan by the Company to the Executive and
the Executive shall pay to the Company on demand (but not less than 10 days
after the determination of such Excess Payment and written notice has been
delivered to the Executive) the amount of the Excess Payment plus interest at an
annual rate equal to the Applicable Federal Rate provided for in Section 1274(d)
of the Code from the date the Gross-Up Payment (to which the Excess Payment
relates) was paid to the Executive until the date of repayment to the Company.
(iv) Notwithstanding anything contained in this Agreement to the
contrary, in the event that, according to the Determination, an Excise Tax will
be imposed on any Parachute Payment or Parachute Payments, the Company shall pay
to the applicable government taxing authorities as Excise Tax withholding, the
amount of the Excise Tax that the Company has actually withheld from the
Parachute Payment or Parachute Payments or the Gross Up Payment.
5. Protection of Confidential Information; Non-Competition
-------------------------------------------------------
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, as well as plans for future
developments by the Company, the Executive agrees:
813581.8
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<PAGE>
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company ("Confidential Information"), learned by the Executive
heretofore or hereafter, and not to use or disclose them to anyone outside of
the Company, either during or after the Executive's employment with the Company,
except in the course of performing the Executive's duties hereunder or with the
Company's express written consent; provided, however, that the restrictions of
this Section 5.1.1 shall not apply to that part of the Confidential Information
that the Executive demonstrates is or becomes generally available to the public
other than as a result of a disclosure by the Executive or is available, or
becomes available, to the Executive on a non-confidential basis, but only if the
source of such information is not prohibited from transmitting the information
to the Executive by a contractual, legal, fiduciary, or other obligation; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 For a period of one (1) year after he ceases to be employed by
the Company under this Agreement or otherwise, if such cessation arises pursuant
to Section 4.3, or as a result of termination by the Executive which is not
pursuant to Section 4.4 or is otherwise in breach of this Agreement, the
Executive shall not, directly or indirectly, enter the employ of, or render any
services to, any person, firm or corporation engaged in any business competitive
with the business of the Company or of any of its subsidiaries or affiliates
unless the Executive has no material involvement in those competitive
activities; the Executive shall not engage in such business on the Executive's
own account; and the Executive shall not become interested in any such business,
directly or indirectly, as an individual, partner, shareholder, director,
officer, principal, agent, employee, trustee, consultant, or in any other
relationship or capacity if that involvement is likely to result in the breach
by the Executive of the restrictions of Section 5.1.1.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having
813581.8
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<PAGE>
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Section 5.2 hereof, and the Executive hereby agrees to account
for and pay over such Benefits to the Company. Each of the rights and remedies
enumerated above shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2 hereof,
or any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall be
given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2 hereof,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties hereto agree that the
court making such determination shall have the power to reduce the duration
and/or area of such provision and, in its reduced form, said provision shall
then be enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 hereof upon the courts
of any state within the geographical scope of such covenants. In the event that
the courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Company's right to the relief provided above in the courts of any
other states within the geographical scope of such covenants as to breaches of
such covenants in such other respective jurisdictions, the above covenants as
they relate to each state being for this purpose severable into diverse and
independent covenants.
5.7 In the event that any action, suit or other proceeding in law or
in equity is brought to enforce the covenants contained in Sections 5.1 and 5.2
hereof or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of
813581.8
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<PAGE>
any injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6. Inventions and Patents.
-----------------------
The Executive agrees that all processes, technologies and
inventions, including new contributions, improvements, ideas and discoveries,
whether patentable or not, conceived, developed, invented or made by him during
his employment by the Company or for one year thereafter (collectively,
"Inventions") shall belong to the Company, provided that such Inventions grew
out of the Executive's work with the Company or any of its subsidiaries or
affiliates, are related to the business (commercial or experimental) of the
Company or any of its subsidiaries or affiliates or are conceived or made on the
Company's time or with the use of the Company's facilities or materials. The
Executive shall promptly disclose such Inventions to the Company and shall,
subject to reimbursement by the Company for all reasonable expenses incurred by
the Executive in connection therewith, (a) assign to the Company, without
additional compensation, all patent and other rights to such Inventions for the
United States and foreign countries; (b) sign all papers necessary to carry out
the foregoing; and (c) give testimony in support of the Executive's
inventorship.
7. Intellectual Property.
----------------------
The Company shall be the sole owner of all the products and proceeds
of the Executive's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments, arrangements,
packages, programs and other intellectual properties that the Executive may
acquire, obtain, develop or create in connection with and during his employment,
free and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's right
to receive payments hereunder). The Executive shall, at the request of the
Company, execute such assignments, certificates or other instruments as the
Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
813581.8
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<PAGE>
8. Indemnification.
----------------
To the fullest extent permitted by applicable law, Executive shall
be indemnified and held harmless for any action or failure to act in his
capacity as an officer or employee of the Company or any of its affiliates or
subsidiaries. In furtherance of the foregoing and not by way of limitation, if
Executive is a party or is threatened to be made a party to any suit because he
is an officer or employee of the Company or such affiliate or subsidiary, he
shall be indemnified against expenses, including reasonable attorney's fees,
judgments, fines and amounts paid in settlement if he acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interest of the
Company, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. Indemnification under this
Section 8 shall be in addition to any other indemnification by the Company of
its officers and directors. Expenses incurred by Executive in defending an
action, suit or proceeding for which he claims the right to be indemnified
pursuant to this Section 8 shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Executive to repay such amount in the event that it shall
ultimately be determined that he is not entitled to indemnification by the
Company. Such undertaking shall be accepted without reference to the financial
ability of Executive to make repayment. The provisions of this Section 8 shall
apply as well to the Executive's actions and omissions as a trustee of any
employee benefit plan of the Company, its affiliates or subsidiaries.
9. Arbitration; Legal Fees
-----------------------
Except with respect to injunctive relief under Section 5 of this
Agreement, any dispute or controversy arising out of or relating to this
Agreement shall be resolved exclusively by arbitration in New York City in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment on the award may be entered in any court
having jurisdiction thereof. The Company shall reimburse the Executive's
reasonable costs and expenses incurred in connection with any arbitration
proceeding pursuant to this Section 9 if the Executive is the substantially
prevailing party in that proceeding.
10. Notices.
--------
All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by overnight courier or
mailed first class, postage prepaid, by registered or certified mail (notices
mailed
813581.8
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<PAGE>
shall be deemed to have been given on the date mailed), as follows (or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith):
If to the Company, to:
Marvel Enterprises, Inc.
387 Park Avenue South
New York, New York 10016
Attention: General Counsel
If to the Executive, to:
Robert Stuart Hull
62 Blackburn Place
Summit, New Jersey 07901
11. General.
--------
11.1 This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely in New York, without regard to the conflict of
law principles of such state.
11.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
11.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation,
promise or inducement not so set forth. This Agreement expressly supersedes all
agreements and understandings between the parties regarding the subject matter
hereof and any such agreement is terminated as of the date first above written.
11.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
813581.8
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<PAGE>
11.5 This Agreement may be amended, modified, superseded, canceled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by both of the parties hereto, or in the case of a
waiver, by the party waiving compliance. The failure of either party at any time
or times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by either party
of the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
12. Subsidiaries and Affiliates.
---------------------------
As used herein, the term "subsidiary" shall mean any corporation or
other business entity controlled directly or indirectly by the Company or other
business entity in question, and the term "affiliate" shall mean and include any
corporation or other business entity directly or indirectly controlling,
controlled by or under common control with the Company or other business entity
in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY:
MARVEL ENTERPRISES, INC.
By: /s/ WILLIAM H. HARDIE, III
------------------------------------
Name:
Title:
EXECUTIVE:
/s/ ROBERT STUART HULL
----------------------------------------
Robert Stuart Hull
813581.8
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SCHEDULE I
----------
Additional Benefits:
- --------------------
1. Automobile Allowance. The Executive shall be eligible for an
automobile allowance in the amount of $1,000 per month in accordance with the
Company's policy.
2. Stock Option Plan. The Executive shall be eligible to participate in
the Marvel Enterprises, Inc. Stock Option Plan (the "Stock Option Plan") and to
receive 200,000 options to purchase shares (the "Shares") of the common stock,
par value $.01 per share ("Common Stock"), of the Company pursuant to the terms
of the Stock Option Plan and related Stock Option Agreement subject to the terms
and conditions approved by the committee of the Board of Directors of the
Company which administers the Stock Option Plan. The options shall be scheduled
to vest as to one-third of the Shares on each of the first, second and third
anniversaries of the date they are granted, shall vest as to all of the Shares
upon a Third Party Change in Control and shall be subject to all other terms and
conditions of the Stock Option Plan and the related Stock Option Agreement
between the Company and the Executive. The Executive's participation in the
Stock Option Plan shall not be, or be deemed to be, a fringe benefit or
additional benefit for purposes of Section 4.5(b)(iv) of this Agreement, and the
Executive's stock option rights shall be governed strictly in accordance with
the Stock Option Plan and the related Stock Option Agreement. In the event of
any conflict between this Agreement and the Stock Option Plan and the related
Stock Option Agreement, or any ambiguity in any such agreements, the Stock
Option Plan and the related Stock Option Agreement shall control.
3. Sign-on Bonus. The Executive has received a $50,000 sign on bonus
upon execution of this Agreement.
4. Relocation Expenses. The Executive shall be reimbursed up to a
maximum of $50,000 for relocation expenses in connection with his prior
relocation to New Jersey to the extent that the Executive is required to repay
those amounts to his former employer.
5. Reimbursement of COBRA Expenses. The Executive shall be reimbursed
for the cost of continued COBRA coverage under the health insurance plans of his
former employer until he becomes eligible to participate in the Company's health
insurance plan.
6. Reimbursement of Legal Fees. The Executive shall be reimbursed for
his reasonable legal fees and expenses incurred in connection with the review
and negotiation of this Agreement.
813581.8
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of March 1, 1999, between Marvel
Enterprises, Inc., a Delaware corporation (the "Company") and Alan Fine (the
"Executive").
WHEREAS, the Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
made herein and the mutual benefits to be derived herefrom, the parties hereto
agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the Executive
for the Term (as defined in Section 2.1), to render exclusive and full-time
services to the Company as President and Chief Executive Officer of the
Company's Toy Biz Division or in such other executive position as may be
mutually agreed upon by the Company and the Executive. The Executive shall
report solely to the Company's Chief Executive Officer and Board of Directors
and shall perform such other duties consistent with such positions as may be
assigned to the Executive by the Company's Chief Executive Officer or Board of
Directors.
1.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment and to use the Executive's professional efforts, skill and
ability to promote the Company's interests. The Executive further agrees to
accept election, and to serve during all or any part of the Term, as an officer
or director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of Directors
of the Company or of any subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the principal executive office of the
Company in New York City, subject to reasonable and customary travel
requirements on behalf of the Company.
818170.4
<PAGE>
2. Term of Employment
2.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence on March 1, 1999 and shall end on March 1,
2001 (the "Expiration Date"). The Term shall end earlier than the Expiration
Date if sooner terminated pursuant to Section 4 hereof. The Expiration Date
shall be automatically postponed for one year, and the Term shall be
automatically extended by one year, unless either party hereto provides the
other party with written notice, not later than sixty (60) days prior to the
Expiration Date, of its election not to permit the Term to be so extended, and
the Expiration Date shall thereafter be automatically postponed for one
additional year and the Term shall thereafter be automatically extended by one
additional year, on each subsequent anniversary of the date of this Agreement,
unless either party provides the other party with written notice, not later than
sixty (60) days prior to such subsequent anniversary of the date of this
Agreement, of its election not to permit the Term to be so extended.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable bi-weekly in arrears, at the annual rate of
$500,000, less such deductions or amounts to be withheld as required by
applicable law and regulations and deductions authorized by the Executive in
writing (the "Base Salary").
3.2 Bonus. In addition to the amounts to be paid to the Executive
pursuant to Section 3.1 hereof, the Executive will be eligible to receive a
bonus (the "Bonus") with respect to each fiscal year of the Term based upon the
attainment of performance goals set by the Board. The Bonus shall be paid
one-half in cash and one-half in common stock of the Company valued at the
average of the average daily high and low sale prices (or of the closing bid and
asked price if high and low sale prices are not published) for such stock as
quoted on the principal securities exchange on which such stock is listed for
trading for the last twenty trading days of the fiscal year for which the Bonus
is awarded. The issuance of any shares of Common Stock of the Company to the
Executive pursuant to this Section 3.2 shall be registered under the Securities
Act of 1933, as amended (the "Securities Act").
3.3 Business Expenses. The Company shall pay for or reimburse the
Executive for all reasonable first-class travel and other expenses actually
incurred by or paid by the Executive during the Term in the performance of the
Executive's services under this Agreement, including the cost and expense
associated with the use (including related personal use) of a cellular
818170.4
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telephone, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers.
3.4 Vacation. During the Term, the Executive shall be entitled to
a vacation period or periods of four (4) weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a calendar year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its executive employees generally,
together with executive medical benefits for the Executive, as from time to time
in effect for executive employees of the Company generally.
3.6 Additional Benefits. During the Term, the Executive shall be
entitled to such other benefits as are specified in Schedule I to this
Agreement.
4. Termination.
4.1 Death. If the Executive shall die during the Term, the Term
shall terminate immediately.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's principal services hereunder for
(i) a period of six consecutive months or (ii) for shorter periods aggregating
six months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equaled an aggregate of six months, by
written notice to the Executive (but before the Executive has recovered from
such disability), terminate the Term.
4.3 Cause. The Term may be terminated by the Company upon notice
to the Executive upon the occurrence of any event constituting "Cause" as
defined herein. As used herein, the term "Cause" means: (i) the Executive's
willful and intentional failure or refusal to perform or observe any of his
material duties, responsibilities or obligations set forth in this Agreement;
provided, however, that the Company shall not be deemed to have Cause pursuant
to this clause (i) unless the Company gives the Executive written notice that
the specified conduct has occurred and making specific reference to this Section
4.3(i) and the Executive fails to cure the conduct within thirty (30) days after
receipt of such notice; (ii) breach by the
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Executive of any of his obligations under Section 5 hereof; (iii) any willful
and intentional acts of the Executive involving malfeasance, fraud, theft,
misappropriation of funds, embezzlement or material dishonesty affecting the
Company; or (iv) the Executive's conviction of, or plea of guilty or nolo
contendre to, an offense which is a felony in the jurisdiction involved.
4.4 Good Reason. The Term may be terminated by the Executive upon
notice to the Company of any event constituting "Good Reason" as defined herein.
As used herein, the term "Good Reason" means the occurrence of any of the
following, without the prior written consent of the Executive: (i) assignment of
the Executive to duties materially inconsistent with the Executive's positions
as described in Section 1.1 hereof, or any significant diminution in the
Executive's duties or responsibilities, other than in connection with the
termination of the Executive's employment for Cause or disability or by the
Executive other than for Good Reason; (ii) any material breach of this Agreement
by the Company which is continuing; (iii) a change in the location of the
Executive's principal place of employment to a location other than as specified
in Section 1.3 hereof; or (iv) the occurrence of a Third Party Change in Control
(as defined in Section 4.5(d) provided, however, that the Executive shall not be
deemed to have Good Reason pursuant to clauses (i) and (ii) above unless the
Executive gives the Company written notice that the specified conduct or event
has occurred and the Company fails to cure such conduct or event within thirty
(30) days of receipt of such notice.
4.5 Severance. (a) If the Term is terminated pursuant to Section
4.1, 4.2 or 4.3 hereof, or by the Executive other than pursuant to Section 4.4,
the Executive shall be entitled to receive his Base Salary, Bonus and any
additional benefits provided hereunder at the rates provided in Sections 3.1 and
3.6 hereof to the date on which such termination shall take effect.
(b) Except as provided in Section 4.5(c), if the Term is
terminated by the Executive pursuant to clauses (i), (ii) or (iii) of Section
4.4 or by the Company other than pursuant to Section 4.1, 4.2 or 4.3, the
Company shall continue thereafter to provide the Executive (i) payments of Base
Salary in the manner and amounts specified in Section 3.1 until the first
anniversary of the date of termination, (ii) if termination occurs at any time
after a Bonus has been awarded under Section 3.2 and prior to the time that the
Bonus has been paid, the amount of that Bonus, (iii) a pro rata portion (based
on time) of the Bonus for the current fiscal year determined in the manner
described in Section 4.5(f) (a "Pro Rata Bonus") and (iv) fringe benefits in the
manner and amounts specified in Section 3.5 until the earlier of the first
anniversary of the date of termination or the date the Executive begins work as
an employee or consultant for any
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other entity. In addition, all equity arrangements provided to the Executive
hereunder or under any employee benefit plan of the Company shall continue to
vest in accordance with the terms of those plans until the earlier of the first
anniversary of the date of termination or the date Executive begins work as an
employee or consultant for any other entity. The Pro Rata Bonus to which the
Executive is entitled, if any, pursuant to this Section 4.5(b) shall be
determined by reference to the attainment of the performance goals referred to
in Section 3.2 as of the end of the fiscal year in which termination of
employment occurs and shall be paid when Bonuses in respect of that year are
generally paid to the Company's other executives. One-half of Pro Rata Bonus, if
any, shall be paid in common stock of the Company and one-half in cash as
provided in Section 3.2. The Executive shall have no duty or obligation to
mitigate the amounts or benefits required to be provided pursuant to this
Section 4.5(b), nor shall any such amounts or benefits be reduced or offset by
any other amounts to which Executive may become entitled; provided, that if the
Executive becomes employed by a new employer or self-employed prior to twelve
(12) months after the date of termination, up to one-half of the Base Salary
payable to the Executive pursuant to this Section 4.5(b) shall be reduced by an
amount equal to the amount earned from such employment with respect to that
period (and the Executive shall be required to return to the Company, without
interest, any amount by which such payments pursuant to Section this 4.5(b)
exceed the Base Salary to which the Executive is entitled after giving effect to
that reduction) and, if the Executive becomes eligible to receive medical or
other welfare benefits under another employer provided plan, the corresponding
medical and other welfare benefits provided under this Section 4.5(b) shall be
terminated. As a condition to the Executive receiving the payments under this
Section 4.5(b), the Executive agrees to permit verification of his employment
records and Federal income tax returns by an independent attorney or accountant,
selected by the Company but reasonably acceptable to the Executive, who agrees
to preserve the confidentiality of the information disclosed by the Executive
except to the extent required to permit the Company to verify the amount
received by Executive from other active employment.
(c) If the Term is terminated by the Executive pursuant to Section
4.4, or by the Company other than pursuant to Section 4.1, 4.2 or 4.3, and the
termination shall occur upon or following the occurrence of a Third Party Change
in Control (as defined in Section 4.5(d) or in contemplation of a Third Party
Change in Control, the Company shall thereafter provide the Executive (i) an
amount equal to two (2) times the sum of (x) the then current Base Salary and
(y) the average of the two most recent annual Bonuses paid (treating any annual
Bonus which is not paid as a result of the Executive's failure to attain
performance goals as having been paid in an amount equal to zero) to the
Executive during the Term (or if only one annual Bonus has
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been paid, the amount of that annual Bonus, and if that termination occurs prior
to the time at which the Bonus for 1999 is paid, $500,000), to be paid in a lump
sum within 30 days after the date of termination, and (ii) fringe benefits in
the manner and amounts specified in Section 3.5 until twelve (12) months after
the date of termination or, with respect to medical and other welfare benefits,
when the Executive becomes eligible to receive medical or other welfare benefits
under another employer provided plan if sooner than twelve (12) months after the
date of termination. In addition, all equity arrangements provided to the
Executive hereunder or under any employee benefit plan of the Company shall
continue to vest until twelve (12) months after the date of termination, unless
vesting is accelerated upon the occurrence of the Third Party Change in Control
as described in Schedule I.
(d) For purposes of this Agreement, a Third Party Change in
Control shall be deemed to have occurred if (i) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than an Excluded Person or
Excluded Group (as defined below) (hereinafter, a "Third Party"), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote in the election of directors of the
Company, (ii) the Company is a party to any merger, consolidation or similar
transaction as a result of which the shareholders of the Company immediately
prior to such transaction beneficially own securities of the surviving entity
representing less than fifty percent (50%) of the combined voting power of the
surviving entity's outstanding securities entitled to vote in the election of
directors of the surviving entity or (iii) all or substantially all of the
assets of the Company are acquired by a Third Party. "Excluded Group" means a
"group" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
that (i) includes one or more Excluded Persons; provided that the voting power
of the voting stock of the Company "beneficially owned" (as such term is used in
Rule 13d-3 promulgated under the Exchange Act) by such Excluded Persons (without
attribution to such Excluded Persons of the ownership by other members of the
"group") represents a majority of the voting power of the voting stock
"beneficially owned" (as such term is used in Rule 13d-3 promulgated under the
Exchange Act) by such group or (ii) exists solely by virtue of the fact that the
members of such group are parties to the Stockholders' Agreement, dated as of
October 1, 1998, by and among the Company, Isaac Perlmutter, Avi Arad, Mark
Dickstein, The Chase Manhattan Bank, Morgan Stanley & Co. Incorporated,
Whippoorwill Associates Incorporated and various other stockholders of the
Company, as that agreement may be
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amended from time to time (the "Stockholders Agreement"). "Excluded Person"
means (i) while the Stockholders Agreement is in effect in substantially its
current form, any person or entity who or which is a party to the Stockholders
Agreement as of the Effective Date and any affiliate of such a party to the
Stockholders Agreement who becomes a party to the Stockholders Agreement, and
(ii) Isaac Perlmutter and Avi Arad or any of their affiliates.
(e)(i) If any payment or benefit (within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")), to
the Executive or for the Executive's benefit paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise in connection
with, or arising out of, the Executive's employment with the Company or a change
in ownership or effective control of the Company or of a substantial portion of
its assets (a "Parachute Payment" or "Parachute Payments"), would be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
are incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive will be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties,
other than interest and penalties imposed by reason of the Executive's failure
to file timely a tax return or pay taxes shown to be due on the Executive's
return), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Parachute Payments.
(ii) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount of such Gross-Up
Payment shall be made at the Company's expense by the Company's regular outside
auditors (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Company and the Executive within ten days
of the Termination Date if applicable, or promptly upon request by the Company
or by the Executive (provided the Executive reasonably believes that any of the
Parachute Payments may be subject to the Excise Tax) and if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Parachute Payment or Parachute Payments, it shall furnish the Executive with an
opinion reasonably acceptable to the Executive that no Excise Tax will be
imposed with respect to any such Parachute Payment or Parachute Payments. Within
ten days of the delivery of the Determination to the Executive, the Executive
shall have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 4.5(e)(ii) shall be paid
by
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the Company to the Executive within ten days of the receipt of the Accounting
Firm's determination notwithstanding the existence of any Dispute. If there is
no Dispute, the Determination shall be binding, final and conclusive upon the
Company and the Executive subject to the application of Section 4.5(e)(iii)
below. The Company and the Executive shall resolve any Dispute in accordance
with the terms of this Agreement.
(iii) As a result of the uncertainty in the application
of Sections 4999 and 280G of the Code, the parties acknowledge that it is
possible that a Gross-Up Payment (or a portion thereof) will be paid which
should not have been paid (an "Excess Payment") or a Gross-Up Payment (or a
portion thereof) which should have been paid will not have been paid (an
"Underpayment"). An Underpayment shall be deemed to have occurred (i) upon
notice (formal or informal) to the Executive from any governmental taxing
authority that the Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior taxable year) may be
increased by reason of the imposition of the Excise Tax on a Parachute Payment
or Parachute Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by
reason of determination by the Company (which shall include the position taken
by the Company, together with its consolidated group, on its federal income tax
return) or (iv) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall promptly, but in any event, at least five days
prior to the date on which the applicable government taxing authority has
requested payment, pay to the Executive an additional Gross-Up Payment equal to
the amount of the Underpayment plus any interest and penalties (other than
interest and penalties imposed by reason of the Executive's failure to file
timely a tax return or pay taxes shown to be due on the Executive's return)
imposed on the Underpayment. An Excess Payment shall be deemed to have occurred
upon a "Final Determination" (as hereinafter defined) that the Excise Tax shall
not be imposed upon a Parachute Payment or Parachute Payments (or portion
thereof) with respect to which the Executive had previously received a Gross-Up
Payment. A "Final Determination" shall be deemed to have occurred when the
Executive has received from the applicable government taxing authority a refund
of taxes or other reduction in the Executive's tax liability by reason of the
Excise Payment and upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing authority
which finally and conclusively binds the Executive and such taxing authority, or
in the event that a claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by such court and either
all appeals have been taken and finally resolved or the time for all appeals has
expired or (y) the statute of limitations with respect to the
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Executive's applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment shall be treated
as a loan by the Company to the Executive and the Executive shall pay to the
Company on demand (but not less than 10 days after the determination of such
Excess Payment and written notice has been delivered to the Executive) the
amount of the Excess Payment plus interest at an annual rate equal to the
Applicable Federal Rate provided for in Section 1274(d) of the Code from the
date the Gross-Up Payment (to which the Excess Payment relates) was paid to the
Executive until the date of repayment to the Company.
(iv) Notwithstanding anything contained in this
Agreement to the contrary, in the event that, according to the Determination, an
Excise Tax will be imposed on any Parachute Payment or Parachute Payments, the
Company shall pay to the applicable government taxing authorities as Excise Tax
withholding, the amount of the Excise Tax that the Company has actually withheld
from the Parachute Payment or Parachute Payments or the Gross Up Payment.
5. Protection of Confidential Information; Non-Competition
5.1 In view of the fact that the Executive's work for the Company
will bring the Executive into close contact with many confidential affairs of
the Company not readily available to the public, as well as plans for future
developments by the Company, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company ("Confidential Information"), learned by the Executive
heretofore or hereafter, and not to use or disclose them to anyone outside of
the Company, either during or after the Executive's employment with the Company,
except in the course of performing the Executive's duties hereunder or with the
Company's express written consent; provided, however, that the restrictions of
this Section 5.1.1 shall not apply to that part of the Confidential Information
that the Executive demonstrates is or becomes generally available to the public
other than as a result of a disclosure by the Executive or is available, or
becomes available, to the Executive on a non-confidential basis, but only if the
source of such information is not prohibited from transmitting the information
to the Executive by a contractual, legal, fiduciary, or other obligation; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes,
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records, reports, manuals, drawings, blueprints and other documents (and all
copies thereof) relating to the Company's business and all property associated
therewith, which the Executive may then possess or have under the Executive's
control.
5.2 For a period of one (1) year after he ceases to be employed by
the Company under this Agreement or otherwise, if such cessation arises pursuant
to Section 4.3, or as a result of termination by the Executive which is not
pursuant to Section 4.4 or is otherwise in breach of this Agreement, the
Executive shall not, directly or indirectly, enter the employ of, or render any
services to, any person, firm or corporation engaged in any business competitive
with the business of the Company or of any of its subsidiaries or affiliates;
the Executive shall not engage in such business on the Executive's own account;
and the Executive shall not become interested in any such business, directly or
indirectly, as an individual, partner, shareholder, director, officer,
principal, agent, employee, trustee, consultant, or in any other relationship or
capacity; provided, however, that nothing contained in this Section 5.2 shall be
deemed to prohibit the Executive from acquiring, solely as an investment, up to
five percent (5%) of the outstanding shares of capital stock of any public
corporation or during such one (1) year period, taking a position with a
business the main business of which is the sale of retail products to customers.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any of
the provisions of Section 5.2 hereof, and the Executive hereby agrees to account
for and pay over such Benefits to the Company. Each of the rights and remedies
enumerated above shall be independent of the other, and shall be severally
enforceable, and all of such rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to the Company under law
or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2
hereof, or any part thereof, hereafter are construed to be
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invalid or unenforceable, the same shall not affect the remainder of the
covenant or covenants, which shall be given full effect, without regard to the
invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2
hereof, or any part thereof, are held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties hereto agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision and, in its reduced form, said provision
shall then be enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction to
enforce the covenants contained in Sections 5.1 and 5.2 hereof upon the courts
of any state within the geographical scope of such covenants. In the event that
the courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is the
intention of the parties hereto that such determination not bar or in any way
affect the Company's right to the relief provided above in the courts of any
other states within the geographical scope of such covenants as to breaches of
such covenants in such other respective jurisdictions, the above covenants as
they relate to each state being for this purpose severable into diverse and
independent covenants.
5.7 In the event that any action, suit or other proceeding in law
or in equity is brought to enforce the covenants contained in Sections 5.1 and
5.2 hereof or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6. Inventions and Patents.
The Executive agrees that all processes, technologies and
inventions, including new contributions, improvements, ideas and discoveries,
whether patentable or not, conceived, developed, invented or made by him during
his employment by the Company or for one year thereafter (collectively,
"Inventions") shall belong to the Company, provided that such Inventions grew
out of the Executive's work with the Company or any of its subsidiaries or
affiliates, are related to the business (commercial or experimental) of the
Company or any of its subsidiaries or
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affiliates or are conceived or made on the Company's time or with the use of the
Company's facilities or materials. The Executive shall promptly disclose such
Inventions to the Company and shall, subject to reimbursement by the Company for
all reasonable expenses incurred by the Executive in connection therewith, (a)
assign to the Company, without additional compensation, all patent and other
rights to such Inventions for the United States and foreign countries; (b) sign
all papers necessary to carry out the foregoing; and (c) give testimony in
support of the Executive's inventorship.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
his employment, free and clear of any claims by the Executive (or anyone
claiming under the Executive) of any kind or character whatsoever (other than
the Executive's right to receive payments hereunder). The Executive shall, at
the request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its right,
title or interest in or to any such properties.
8. Indemnification.
To the fullest extent permitted by applicable law, Executive shall
be indemnified and held harmless for any action or failure to act in his
capacity as an officer or employee of the Company or any of its affiliates or
subsidiaries. In furtherance of the foregoing and not by way of limitation, if
Executive is a party or is threatened to be made a party to any suit because he
is an officer or employee of the Company or such affiliate or subsidiary, he
shall be indemnified against expenses, including reasonable attorney's fees,
judgments, fines and amounts paid in settlement if he acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interest of the
Company, and with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful. Indemnification under this
Section 8 shall be in addition to any other indemnification by the Company of
its officers and directors. Expenses incurred by Executive in defending an
action, suit or proceeding for which he claims the right to be indemnified
pursuant to this Section 8 shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of Executive to repay such amount in the event that it shall
ultimately be determined that he is not entitled to
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indemnification by the Company. Such undertaking shall be accepted without
reference to the financial ability of Executive to make repayment. The
provisions of this Section 8 shall apply as well to the Executive's actions and
omissions as a trustee of any employee benefit plan of the Company, its
affiliates or subsidiaries.
9. Arbitration; Legal Fees
Except with respect to injunctive relief under Section 5 of this
Agreement, any dispute or controversy arising out of or relating to this
Agreement shall be resolved exclusively by arbitration in New York City in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment on the award may be entered in any court
having jurisdiction thereof. The Company shall reimburse the Executive's
reasonable costs and expenses incurred in connection with any arbitration
proceeding pursuant to this Section 9 if the Executive is the substantially
prevailing party in that proceeding.
10. Notices.
All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by overnight courier or
mailed first class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed), as follows (or to
such other address as either party shall designate by notice in writing to the
other in accordance herewith):
If to the Company, to:
Marvel Enterprises, Inc.
387 Park Avenue South
New York, New York 10016
Attention: General Counsel
If to the Executive, to:
Alan Fine
628 Valley Road
New Canaan, Connecticut 06840
11. General.
11.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New
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York, without regard to the conflict of law principles of such state.
11.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
11.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation,
promise or inducement not so set forth. This Agreement expressly supersedes all
agreements and understandings between the parties regarding the subject matter
hereof and any such agreement is terminated as of the date first above written.
11.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii) to
third parties in connection with any sale, transfer or other disposition of all
or substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether by
merger, consolidation or acquisition of all or substantially all of its business
or assets.
11.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
12. Subsidiaries and Affiliates.
As used herein, the term "subsidiary" shall mean any corporation
or other business entity controlled directly or indirectly by the Company or
other business entity in question, and the term "affiliate" shall mean and
include any corporation or other business entity directly or indirectly
controlling,
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controlled by or under common control with the Company or other business entity
in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
COMPANY:
MARVEL ENTERPRISES, INC.
By:/s/ WILLIAM H. HARDIE
------------------------
Name: William H. Hardie
Title: EVP
EXECUTIVE:
/s/ ALAN FINE
---------------------------
Alan Fine
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SCHEDULE I
Additional Benefits:
1. Automobile Allowance. The Executive shall be eligible for an
automobile allowance in the amount of $1,000 per month in accordance with the
Company's policy.
2. Stock Option Plan. The Executive shall be eligible to participate in
the Marvel Enterprises, Inc. Stock Option Plan (the "Stock Option Plan") and to
receive an additional grant of 200,000 options to purchase shares (the "Shares")
of the common stock, par value $.01 per share ("Common Stock"), of the Company
pursuant to the terms of the Stock Option Plan and related Stock Option
Agreement subject to the terms and conditions approved by the committee of the
Board of Directors of the Company which administers the Stock Option Plan. The
options shall be scheduled to vest as to one-third of the Shares on each of the
first, second and third anniversaries of the date they are granted, shall vest
as to all of the Shares upon a Third Party Change in Control and shall be
subject to all other terms and conditions of the Stock Option Plan and the
related Stock Option Agreement between the Company and the Executive. The
Executive's participation in the Stock Option Plan shall not be, or be deemed to
be, a fringe benefit or additional benefit for purposes of Section 4.5(b)(iv) of
this Agreement, and the Executive's stock option rights shall be governed
strictly in accordance with the Stock Option Plan and the related Stock Option
Agreement. In the event of any conflict between this Agreement and the Stock
Option Plan and the related Stock Option Agreement, or any ambiguity in any such
agreements, the Stock Option Plan and the related Stock Option Agreement shall
control.
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SEPARATION AGREEMENT
This Separation Agreement (this "Agreement") is made on July
16, 1999, by and between Eric Ellenbogen (the "Executive") and Marvel
Enterprises, Inc. (the "Company").
1. Termination of Employment. The Executive and the Company
agree that the Executive's employment with the Company shall terminate effective
as of July 15, 1999 (the "Termination Date"). The Executive hereby resigns,
effective as of the Termination Date, all positions, titles, duties, authorities
and responsibilities with, arising out of or relating to his employment with the
Company and its subsidiaries and affiliates.
2. Payments. (a) On the first business day after the Effective
Time (the "Payment Date"), the Company shall pay the Executive (i) his earned
but unpaid base salary through the Termination Date at an annual rate of seven
hundred fifty thousand dollars ($750,000) and (ii) for three weeks of accrued
but unused vacation pay.
(b) Not later than the Payment Date, the Company shall pay the
Executive, by wire transfer to an account designated by the Executive, two
million five hundred thousand dollars ($2,500,000).
(c) From the Termination Date through December 7, 2001, the
Company shall continue to provide the Executive and his family with medical,
prescription, dental, disability, life, accidental death and travel accident
benefits and other benefits referred to in Section 3(e) of the Employment
Agreement, dated November 11, 1998, between the Executive and the Company (the
"Employment Agreement") at least equal to those which would have been provided
to Executive and his family in accordance with the plans, practices or policies
governing such benefits if the Executive's employment had not been terminated;
provided that if the Executive becomes re-employed with another employer and is
eligible to receive medical and other welfare benefits under another
employer-provided plan, the corresponding medical and other welfare benefits
shall no longer be required to be provided by the Company; and provided,
further, that, with respect to medical benefits, the Company shall be deemed to
have satisfied its obligations under this sentence if it continues to reimburse
the Executive for the cost of the continuation of his medical insurance benefits
from a prior employer, consistent with prior practice between the Company and
the Executive. Benefit continuation pursuant to this Section 2(c) shall not
satisfy the Company's obligation to offer to continue the Executive's medical
benefits at the Executive's own expense under the federal law commonly referred
to as COBRA.
(d) Effective as of the Effective Time, the option (the
"Option") which was granted to the Executive pursuant to the Company's 1998
Stock Incentive Plan and which is evidenced by a Nonqualified Stock Option
Agreement, dated November 11, 1998 (the "Option Agreement"), shall be vested
with respect to 240,000 shares and to that extent shall remain outstanding and
exercisable, notwithstanding the termination of the Executive's employment with
the Company, until the close of business on the third anniversary of the
Effective Time, at which time it shall terminate. In addition, the Option, with
respect to an additional 480,000 shares, shall become exercisable not later than
ten (10) days prior to the occurrence of a Third Party Change in Control (within
the meaning of the Employment Agreement), provided that such Third Party Change
in Control occurs not later than January 15, 2001, and shall, to that extent,
<PAGE>
remain outstanding and exercisable, notwithstanding the termination of the
Executive's employment with the Company, for a period of ninety (90) days, at
which time it shall terminate with respect to such shares. Except as provided in
the preceding sentence, the Option with respect to those 480,000 shares shall
not become exercisable. The balance of the Option granted to the Executive shall
terminate at the Effective Time. Except as expressly provided in this Section
2(d), the terms and conditions of the Option shall remain unchanged. The Company
represents that the condition set forth in Section 18 of the Option Agreement
has been satisfied.
3. Other Agreements. (a) The Executive acknowledges and agrees
to comply with the agreements set forth in Section 8(a) of the Employment
Agreement (concerning confidentiality) and with Sections 8(c), (d) and (e) of
the Employment Agreement to the extent that they relate to Section 8(a) of the
Employment Agreement.
(b) The Company acknowledges and agrees to comply with the
agreements set forth in Sections 5(d) (concerning excise taxes) and 10
(concerning indemnification) of the Employment Agreement.
(c) Not later than the close of business on July 20, 1999, the
Company agrees to issue the press release attached hereto as Exhibit A.
(d) Executive shall not intentionally make any public
statements, encourage others to make statements or release information intended
to disparage or defame the Company, any of its affiliates or any of their
respective directors or officers. The Company shall cause its senior executives
and directors not to intentionally make, or cause or encourage others to make,
any public statements or release information intended to disparage or defame the
Executive's reputation, and the Company shall not take any such action on its
own behalf. Notwithstanding the foregoing, nothing in this Section 3(d) shall
prohibit any person from making truthful statements when required by order of a
court or other body having jurisdiction or as required by law.
(e) The employment of the Executive's assistant, William
Gutierrez, will terminate on the earlier to occur of (i) October 15, 1999 or
(ii) the commencement by Mr. Gutierrez of new employment other than as an
assistant to the Executive. Prior to such termination, Mr. Gutierrez shall have
no further duties as an employee of the Company and shall be free to continue to
assist the Executive in connection with transition and other matters. Upon the
termination of his employment, the Company agrees to pay Mr. Gutierrez a lump
sum amount, subject to required withholding, equal to three months base salary
at his rate of base salary in effect on the date hereof.
(f) The Company agrees that up to three cellular telephones,
telephone and computer lines from his residence and a computer and fax machine
for use at his residence that have been provided to Executive shall become the
property of the Executive.
(g) The Company shall permit the Executive not less than two
weeks to remove his property from the Company's premises, during which time the
Executive and his assistants shall be entitled to continue to use his office and
all related services that are currently provided. The Company shall be
responsible for up to $1,000 for moving expenses related to the removal of the
Executive's property from his office. The Company acknowledges that all
furniture and
2
<PAGE>
personal property (including the office computer and printer) in the Executive's
office is the property of the Executive.
(h) The Company shall reimburse the Executive an amount not to
exceed $5,000 for his reasonable legal fees in connection with the negotiation
of this Agreement.
(i) Within two (2) business days after presentation of
receipts therefore, the Company shall reimburse the Executive for all
unreimbursed business expenses incurred by him that are consistent with his
previously approved business expenses.
(j) For at least six (6) months after the Termination Date,
the Company agrees to maintain the Executive's current office telephone
extension together with an automated voice response system that includes a
message maintained by the Executive. The Company agrees to arrange for all mail
directed to the Executive at the Company's offices to be promptly delivered to
the Executive.
4. General Release and Waiver. (a) The Executive hereby
releases, remises and acquits the Company and all of its affiliates, and their
respective officers, directors, shareholders, members, agents, executives,
consultants, independent contractors, attorneys, advisers, successors and
assigns, jointly and severally, from any and all claims, known or unknown, which
the Executive or the Executive's heirs, successors or assigns have or may have
against any of such parties arising on or prior to the date of this Agreement
and any and all liability which any of such parties may have to the Executive,
whether denominated claims, demands, causes of action, obligations, damages or
liabilities arising from any and all bases, however denominated, including but
not limited to all contractual claims and any claims under the Age
Discrimination in Employment Act, the Americans With Disabilities Act of 1990,
the Family and Medical Leave Act of 1993, Title VII of the United States Civil
Rights Act of 1964, 42 U.S.C. ss.1981 or any other Federal, State or local law
and any workers' compensation or disability claim under any such law. This
release relates to claims arising from and during the Executive's employment
relationship with the Company or as a result of the termination of such
relationship. The Executive further agrees that the Executive will not file or
permit to be filed on the Executive's behalf any such claim. Notwithstanding the
preceding sentence or any other provision of this Agreement, this release is not
intended to interfere with the Executive's right to file a charge with the Equal
Employment Opportunity Commission in connection with any claim he believes he
may have against the Company. However, by executing this Agreement, the
Executive hereby waives the right to recover in any proceeding the Executive may
bring before the Equal Employment Opportunity Commission or any State human
rights commission or in any proceeding brought by the Equal Employment
Opportunity Commission or any State human rights commission on the Executive's
behalf. This release is for any relief, no matter how denominated, including,
but not limited to, injunctive relief, wages, back pay, front pay, compensatory
damages, or punitive damages. This release shall not apply to any obligation of
the Company pursuant to this Agreement, any benefit to which the Executive may
be entitled under any tax-qualified pension plan of the Company or its
affiliates, COBRA continuation coverage benefits or any other similar benefits
required to be provided by law, any rights in the nature of indemnification
which the Executive may have with respect to claims against the Executive
relating to or arising out of his employment with the Company or any rights that
the Executive may have to obtain contribution in the event of the entry of
judgment against him as a result of any act or failure to act for which both the
Executive and the Company or any of its affiliates are jointly responsible.
3
<PAGE>
(b) The Executive acknowledges that the agreements of the
Company hereunder are being provided in consideration of the foregoing release
and that the Executive may not otherwise be entitled to certain of the benefits
described herein. The Executive agrees not to make any claim or take any
position inconsistent with the preceding sentence.
(c) The Company hereby releases, remises and acquits the
Executive and his successors, heirs and advisers, jointly and severally, from
any and all claims, known or unknown, which the Company or its affiliates,
successors or assigns have or may have against any of such parties arising on or
prior to the date of this Agreement and any and all liability which any of such
parties may have to the Company, whether denominated claims, demands, causes of
action, obligations, damages or liabilities arising from any and all bases,
however denominated, including but not limited to all contractual claims and any
claims under law. The Company further agrees that the Company will not file or
permit to be filed any such claim. This release is for any relief, no matter how
denominated, including, but not limited to, injunctive relief, compensatory
damages or punitive damages. This release shall not apply to any obligation of
the Executive pursuant to this Agreement or any rights that the Company or its
affiliates may have to obtain contribution in the event of the entry of judgment
against the Company or any such affiliate as a result of any act or failure to
act for which both the Executive and the Company or such affiliate are jointly
responsible.
5. No Admission. This Agreement does not constitute an
admission of liability or wrongdoing of any kind by the Company or its
affiliates or Executive.
6. Heirs and Assigns. The terms of this Agreement shall be
binding on the parties hereto and their respective successors and assigns.
7. Arbitration; Legal Fees. Except with respect to Section
3(a) hereof, any dispute or controversy arising out of or relating to this
Agreement (including any dispute or controversy arising out of the Option) shall
be resolved exclusively by arbitration in New York City by a panel of three
arbitrators who have been actively engaged in the practice of law for at least
the last ten (10) years in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect. Judgment on the award may
be entered in any court having jurisdiction thereof and the provisions of
Section 3.3(a) and (d) of the Company's 1998 Stock Incentive Plan and Section 17
of the Option Agreement shall not apply to any such dispute. The Company shall
reimburse the Executive's reasonable costs and expenses incurred in connection
with any arbitration proceeding pursuant to this Section 7 or any action with
respect to Section 3(a) hereof if the Executive is the substantially prevailing
party in that proceeding or action.
8. General Provisions. (a) This Agreement constitutes the
entire understanding of the Company and the Executive with respect to the
subject matter hereof and supersedes all prior understandings, written or oral,
with respect thereto. The terms of this Agreement may be changed, modified or
discharged only by an instrument in writing signed by the parties hereto. A
failure of the Company or the Executive to insist on strict compliance with any
provision of this Agreement shall not be deemed a waiver of such provision or
any other provision hereof. In the event that any provision of this Agreement is
determined to be so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
4
<PAGE>
(b) This Agreement shall be construed, enforced and
interpreted in accordance with and governed by the laws of the State of New
York.
(c) The parties hereto acknowledge and agree that each party
has reviewed and negotiated the terms and provisions of this Agreement and has
had the opportunity to contribute to its revision. Accordingly, the rule of
construction to the effect that ambiguities are resolved against the drafting
party shall not be employed in the interpretation of this Agreement. Rather, the
terms of this Agreement shall be construed fairly as to both parties hereto and
not in favor or against either party.
(d) This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
counterpart, when so executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and the
same Agreement.
(e) All notice, requests, demands or other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given when delivered in person or when received by facsimile or overnight
express to the party to whom such notice is being given as follows:
As to Executive:
Mr. Eric Ellenbogen
22 Gramercy Park South, #1A
New York, New York 10003
With a copy to:
Arthur H. Kohn
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
As to the Company:
Marvel Enterprises, Inc.
387 Park Avenue South
New York, New York 10016
Attention: Board of Directors
With a copy to:
John Turitzin
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
5
<PAGE>
Either party may change his or its address or the name of the person to whose
attention the notice or other communication shall be directed from time to time
by serving notice thereof upon the other party as provided herein.
(f) The Company represents and warrants to the Executive that
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized
and that all corporate action required to be taken by the Company for the
execution, delivery and performance of this Agreement has been duly and
effectively taken. The Company acknowledges that the Executive has relied upon
such representations and warranties in entering into this Agreement.
(g) All payments and benefits payable pursuant hereto shall be
paid subject to all required tax withholdings. The withholding of income taxes
with respect to the payment pursuant to Section 2(b) hereof shall be at the
combined rate applicable to bonuses and other supplemental payments of 39.81%.
9. Knowing and Voluntary Waiver. The Executive acknowledges
that, by the Executive's free and voluntary act of signing below, the Executive
agrees to all of the terms of this Agreement and intends to be legally bound
thereby.
The Executive understands that he may consider whether to
agree to the terms contained herein for a period of twenty-one days after the
date hereof. Accordingly, the Executive may execute this Agreement by August 7,
1999, to acknowledge his understanding of and agreement with the foregoing. The
Executive acknowledges that he has been advised to consult with an attorney
prior to executing this Agreement.
This Agreement will become effective, enforceable and
irrevocable at 5 p.m. (eastern time) on the seventh day after the date on which
it is executed by the Executive (the "Effective Time"). During the seven-day
period prior to the Effective Time, the Executive may revoke his agreement to
accept the terms hereof by notifying the Company of his intention to revoke. If
the Executive exercises his right to revoke hereunder, he shall forfeit his
right to receive any of the benefits provided for herein.
MARVEL ENTERPRISES, INC.
/s/ MORTON E. HANDEL
------------------------------------
By: Morton E. Handel, Chairman of the Board
/s/ ERIC ELLENBOGEN
------------------------------------
Eric Ellenbogen
6
<PAGE>
Exhibit A
Marvel Enterprises, Inc. Appoints Peter Cuneo
as President and Chief Executive Officer
New York, New York - July 20, 1999. Marvel Enterprises, Inc. (NYSE: MVL)
announced today the appointment of Peter Cuneo as President and Chief Executive
Officer of the Company. Mr. Cuneo replaces Eric Ellenbogen, who resigned from
the Company to head a media investment concern.
In making the announcement, Morton Handel, the Company's Chairman of the Board,
commented, "Peter's twenty-five years of management and administrative
experience in a broad range of consumer businesses with strong brand identities
makes him uniquely suited to build on the Company's existing creative talent and
to ensure continued growth. I look forward to his leadership."
Mr. Cuneo said, "This is an exciting opportunity to further develop Marvel's
creative capital. I expect to continue the recent growth of Marvel's publishing
and licensing businesses. At the same time, I look forward to expanding the
opportunities available to marvel from the entertainment projects currently in
progress, such as the X-Man and Spider-Man live-action feature films, and the
significant expansion of Marvel's internet presence."
Mr. Cuneo has been Chief Executive Officer of Remington Products Company,
L.L.C., a manufacturer and marketer of personal-care appliances; President of
the Security Hardware Group of Black and Decker Corporation; and, as President
of Clairol's Personal Care Division, a senior executive at Bristol-Myers Squibb
Company. He was also a director of FactoryMall.com, an internet marketer of
durable consumer products that was sold to Theglobe.com, Inc. in February, 1999.
Mr. Cuneo holds an MBA from the Harvard Graduate School of Business. He received
his undergraduate degree from Alfred University, where he is currently a member
of the Board of Trustees.
Commenting on Mr. Ellenbogen's departure, Mr. Handel said, "Eric joined Marvel
at a critical time, just as the Company emerged from Chapter 11 bankruptcy. He
assembled an outstanding management team, successfully completed a $250 million
long-term financing and arranged a three-year $60 million working capital
facility. He also helped launch the Spider-Man filmed entertainment franchise
with Sony Pictures Entertainment, resolving years of litigation over the
Company's best-known property. We thank him for his considerable contributions
to Marvel."
Marvel Enterprises, Inc. is one of the world's leading entertainment companies
with operations in the licensing, comic book publishing and toy businesses. The
company was formed on October 1, 1998 upon the emergence of Marvel Entertainment
Group, Inc. from bankruptcy
<PAGE>
and its merger with Toy Biz, Inc. Through its ownership of over 3,500
proprietary characters, the company has published comic books from over 60 years
in over 70 countries. Marvel licenses the right to use its characters in a wide
range of consumer products such as video games, interactive software and
apparel, as well as for television series and feature films. For additional
company information, visit the company's corporate web site at www.marvel.com.
Except for historical information contained herein, the statements in this news
release regarding the Company's plans are forward-looking statements that are
dependent upon certain risk and uncertainties, including the Company's potential
need for additional financing, potential inability to integrate Toy Biz's
operation with those of Marvel Entertainment Group, the Company's potential
inability to successfully implement its business strategy, a decrease in the
level of media exposure or popularity of the Company's characters resulting in
declining revenues from products based on those characters, the lack of
commercial success of properties owned by major entertainment companies that
have granted the Company toy licenses, the lack of consumer acceptances of new
product introductions, the imposition of quotas or tariffs on toys manufactured
in China as a result of a deterioration in trade relations between the U.S. and
China, changing consumer preferences, production delays or shortfalls, continued
pressure by certain of the Company's major retail customers to significantly
reduce their toy inventory levels, the impact of competition and changes to the
competitive environment on the Company's products and services, changes in
technology (including uncertainties associated with Year 2000 compliances), and
changes in government regulation. Those and other risks and uncertainties are
described in the Company's filings with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.
SOURCE Marvel Enterprises, Inc.
CONTACT: Jan Murray, Vice President, Corporate Communications of Marvel
Enterprises, Inc. 212-576-8522
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 19, 1999, between
Marvel Enterprises, Inc., a Delaware corporation (the "Company") and F. Peter
Cuneo (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and
the Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants made herein and the mutual benefits to be derived herefrom, the
parties hereto agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services to the Company as its President and Chief Executive Officer.
The Executive shall report solely to the Board of Directors of the Company,
shall be the most senior person performing executive responsibilities and
possessing executive authority with respect to the operation and management of
the business of the Company and its subsidiaries and shall perform such other
duties consistent with such positions as may be assigned to the Executive by the
Chairman of the Board or the Board of Directors. All other employees of the
Company shall report, directly or indirectly, to the Executive.
1.2 Acceptance. The Executive hereby accepts such
employment and agrees to render the services described above. During the Term,
the Executive agrees to serve the Company faithfully and to the best of the
Executive's ability, to devote the Executive's entire business time, energy and
skill to such employment (other than outside business activities and service on
corporate, civic or charitable boards or committees which do not interfere with
the Executive's duties and responsibilities as an employee of the Company in
accordance with this Agreement and which, in each instance, are approved by the
Board of Directors or the Chairman of the Board) and to use the Executive's
professional efforts, skill and ability to promote the Company's interests. The
Executive further agrees to accept election, and to serve during all or any part
of the Term, as an officer or director of the Company and of any subsidiary or
affiliate of the Company, without any compensation therefor other than that
specified in this Agreement, if elected to any such position by the shareholders
or by the Board of Directors of the Company or of any subsidiary or affiliate,
as the case may be.
1.3 Board of Directors Election. Subject to the
Stockholders' Agreement, dated as of October 1, 1998, by and among Avi Arad,
Various Dickstein Entities and Individuals, Isaac Perlmutter, Isaac Perlmutter,
T.A., The Laura & Isaac Perlmutter
855858.6
<PAGE>
Foundation Inc., Object Trading Corp., Zib Inc., Various Secured Lenders and the
Company, as that agreement may be amended from time to time (the "Stockholders'
Agreement"), the Company shall nominate the Executive for election or
re-election as a director of the Company and shall otherwise use its best
efforts to cause the Executive to be elected to the Company's Board of
Directors. The Executive acknowledges that the Stockholders' Agreement provides
that all of the seats on the Board of Directors are currently to be filled by
nominees of the parties to the Stockholders' Agreement, that none of the parties
to the Stockholders' Agreement is under any obligation to name the Executive as
its nominee to serve on the Board, that the Company does not intend to expand
the size of the Board to permit the Executive's election as a director and that
the Stockholders' Agreement is likely to preclude the Executive's election to
the Board of Directors for the foreseeable future. If the Executive is not a
director of the Company at any time during the Term, he shall have the right to
attend all meetings of the Board of Directors and to participate in such
meetings as though he was a director but shall not have the right to vote at
such meetings.
1.4 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the principal executive office of the
Company in New York City, subject to reasonable and customary travel
requirements on behalf of the Company.
2. Term of Employment
2.1 The Term. The term of the Executive's employment under
this Agreement (the "Term") shall commence on July 21, 1999 (the "Effective
Date") and shall end on July 21, 2002 (the "Scheduled Expiration Date"). The
Term shall end earlier than the Scheduled Expiration Date if sooner terminated
pursuant to Section 4 hereof. The Scheduled Expiration Date shall be
automatically postponed for one year, and the Term shall be automatically
extended by one year, unless either party hereto provides the other party with
written notice (a "Notice of Nonrenewal"), not later than sixty days prior to
the Scheduled Expiration Date, of its election not to permit the Term to be so
extended, and the Scheduled Expiration Date shall thereafter be automatically
postponed for one additional year and the Term shall thereafter be automatically
extended by one additional year, on each subsequent anniversary of the date of
this Agreement, unless either party provides the other party with written
notice, not later than sixty days prior to such subsequent anniversary of the
date of this Agreement, of its election not to permit the Term to be so
extended.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable bi-weekly in arrears, at the annual rate of
$650,000, less such deductions or amounts to be withheld as required by
applicable law and regulations and deductions authorized by the Executive in
writing. The Executive's base salary shall be reviewed no less frequently than
annually by the Board of Directors and may be increased, but not decreased, by
the Board of
855858.6
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<PAGE>
Directors. The Executive's base salary as in effect from time to time is
referred to in this Agreement as the "Base Salary".
3.2 Bonus. In addition to the amounts to be paid to the
Executive pursuant to Section 3.1 hereof, the Executive will receive a sign-on
cash bonus of $100,000 (the "Sign-On Bonus") payable in one installment of
$50,000 on the Effective Date and a second installment of $50,000 no later than
October 15, 1999, and an annual bonus (which shall not be pro rated except as
provided in Section 4) of $390,000 in cash in respect of 1999. With respect to
each subsequent fiscal year of the Term, the Executive will be eligible to
receive a cash bonus based upon the attainment of performance goals set by the
Board of Directors (the "Bonus Performance Goals"). The Executive's target
annual bonus amount in respect of each such subsequent fiscal year shall be 60%
of his base salary for the year. The bonus in respect of 1999 shall be paid to
the Executive no later than February 1, 2000. Each annual bonus in respect of
subsequent fiscal years shall be paid when annual bonuses are paid generally to
the Company's other senior executive officers but in no event later than the
ninetieth day of the next fiscal year. The annual bonus for 1999 and the Sign-On
Bonus shall be subject to reduction (and repayment by the Executive to the
extent already received by the Executive) by the lesser of (x) the amount of any
bonuses, deal fees and employee savings plan payments that the Executive
receives in respect of his employment with Cortec Group Inc. and (y) $300,000.
3.3 Business Expenses. The Company shall pay for or
reimburse the Executive for all reasonable first-class travel and other expenses
actually incurred by or paid by the Executive during the Term in the performance
of the Executive's services under this Agreement, including the cost and expense
associated with the use (including related personal use) of a cellular
telephone, upon presentation of expense statements or vouchers or such other
supporting information as the Company customarily may require of its officers.
3.4 Vacation. During the Term, the Executive shall be
entitled to a vacation period or periods of four (4) weeks per year taken in
accordance with the vacation policy of the Company during each year of the Term.
Vacation time not used by the end of a calendar year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall
be entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called "fringe"
benefit plan which the Company provides to its executive employees generally,
together with executive medical benefits for the Executive, as from time to time
in effect for executive employees of the Company generally.
3.6 Additional Benefits. During the Term, the Executive
shall be entitled to such other benefits as are specified in Schedule I to this
Agreement.
855858.6
-3-
<PAGE>
4. Termination.
4.1 Death. If the Executive shall die during the Term, the
Term shall terminate immediately.
4.2 Disability. If during the Term the Executive shall
become physically or mentally disabled, whether totally or partially, such that
the Executive is unable to perform the Executive's principal services hereunder
for (i) a period of six consecutive months or (ii) for shorter periods
aggregating six months during any twelve month period, the Company may at any
time after the last day of the six consecutive months of disability or the day
on which the shorter periods of disability shall have equaled an aggregate of
six months, by written notice to the Executive (but before the Executive has
recovered from such disability), terminate the Term.
4.3 Cause. The Term may be terminated by the Company upon
notice to the Executive upon the occurrence of any event constituting "Cause" as
defined herein. As used herein, the term "Cause" means: (i) the Executive's
willful and intentional failure or refusal to perform or observe any of his
material duties, responsibilities or obligations set forth in this Agreement;
provided, however, that the Company shall not be deemed to have Cause pursuant
to this clause (i) unless the Company gives the Executive written notice that
the specified conduct has occurred and making specific reference to this Section
4.3(i), the Executive is given an opportunity to appear before the Board of
Directors to discuss the conduct alleged to constitute Cause and the Executive
fails to cure the conduct within thirty (30) days after receipt of such notice;
(ii) breach by the Executive of any of his obligations under Section 5 hereof;
(iii) any willful and intentional acts of the Executive involving fraud, theft,
misappropriation of funds, embezzlement or material dishonesty affecting the
Company or willful misconduct by the Executive which has, or could reasonably be
expected to have, a material adverse effect on the Company; or (iv) the
Executive's conviction of, or plea of guilty or nolo contendre to, an offense
which is a felony in the jurisdiction involved.
4.4 Permitted Termination by the Executive. (a) The Term
may be terminated by the Executive upon notice to the Company of any event
constituting "Good Reason" as defined herein. As used herein, the term "Good
Reason" means the occurrence of any of the following, without the prior written
consent of the Executive: (i) assignment of the Executive to duties materially
inconsistent with the Executive's positions as described in Section 1.1 hereof,
or any significant diminution in the Executive's duties or responsibilities,
other than in connection with the termination of the Executive's employment for
Cause or disability or by the Executive other than for Good Reason; (ii) breach
by the Company of its obligations under Section 1.3 hereof or any other material
breach of this Agreement by the Company which is continuing;(iii) a change in
the location of the Executive's principal place of employment to a location
other than as specified in Section 1.4 hereof; or (iv) the occurrence of a Third
Party Change in Control (as defined in Section 4.5(d)), provided, however, that
the Executive shall not be deemed to have Good Reason pursuant to clauses (i)
and (ii) above
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unless the Executive gives the Company written notice that the specified conduct
or event has occurred and the Company fails to cure such conduct or event within
thirty (30) days of receipt of such notice.
(b) The Term may be terminated by the Executive at any time
by giving the Company a notice of termination specifying a termination date no
less than sixty (60) days after the date the notice is given.
4.5 Severance. (a) If the Term is terminated pursuant to
Section 4.1, 4.2 or 4.3 hereof, or by the Executive other than pursuant to
Section 4.4(a), the Executive shall be entitled to receive his Base Salary,
bonus and any additional benefits provided hereunder at the rates provided in
Sections 3.1, 3.5 and 3.6 hereof to the date on which such termination shall
take effect. If the Term is terminated by the Executive pursuant to Section
4.4(b), the Executive shall also be entitled to receive a pro rata portion
(based on time) of the annual bonus for the year in which the termination date
occurs (a "Pro Rata Bonus"). The pro rata bonus to which the Executive is
entitled, if any, for each year other than 1999 shall be determined by reference
to the attainment of the performance goals referred to in Section 3.2 as of the
end of the fiscal year in which termination of employment occurs and shall be
paid when bonuses in respect of that year are generally paid to the Company's
other executives but in no event later than the ninetieth day of the next fiscal
year. If the Term is terminated prior to the first anniversary of the Effective
Date pursuant to Section 4.3 or by the Executive other than pursuant to Section
4.4(a), the Executive shall promptly repay to the Company any portion of the
Sign-On Bonus and the amount by which the annual bonus received by him in
respect of 1999 exceeds $190,000.
(b) Except as provided in Section 4.5(c), if the Term is
terminated by the Executive pursuant to clauses (i), (ii) or (iii) of Section
4.4(a) or by the Company other than pursuant to Section 4.1, 4.2 or 4.3, or if
the Term expires on the Scheduled Expiration Date as a result of the Company
giving a Notice of Nonrenewal, and, in such event, such termination occurs prior
to, and other than in contemplation of, the occurrence of a Third Party Change
in Control (as defined in Section 4.5(d)), the Company shall continue thereafter
to provide the Executive (i) payments of Base Salary in the manner and amounts
specified in Section 3.1 until the later of the third anniversary of the
Effective Date or the second anniversary of the date of termination (the
"Severance Period"), (ii) any unpaid portion of the Sign-On Bonus plus if
termination occurs at any time after a bonus has been awarded under Section 3.2
and prior to the time that the bonus has been paid, the amount of that bonus,
(iii) if termination occurs prior to the time that the bonus for 1999 is paid, a
bonus in the amount of $390,000 and if termination occurs after 1999, a bonus
equal to the average of (x) the annual bonus for the year in which termination
occurs determined by reference to the attainment of the performance goals
referred to in Section 3.2 as of the end of that fiscal year and (y) the annual
bonus in respect of the fiscal year immediately preceding the year in which
termination occurs, (iv) an annual bonus for each subsequent fiscal year (or pro
rata bonus, based on time, for any portion of a fiscal year) during the
Severance Period but after the fiscal year in which termination occurs at
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the same annual rate as the annual bonus paid pursuant to clause (iii) of this
Section 4.5(b), (v) fringe benefits in the manner and amounts specified in
Section 3.5 until the earlier of (x) the period ending on the date the Executive
begins work as an employee or consultant for any other entity or (y) the end of
the Severance Period. In addition, all unvested equity arrangements provided to
the Executive hereunder or under any employee benefit plan of the Company shall
continue to vest until the end of the Severance Period unless vesting is
accelerated upon the occurrence of the Third Party Change in Control as
described in Schedule I and shall remain exercisable for ninety days after the
end of the Severance Period. All annual bonus amounts payable pursuant to this
Section 4.5(b), shall be payable in cash within 90 days after each fiscal year
end occurring during the Severance Period and 90 days after the expiration of
the Severance Period. The Executive shall have no duty or obligation to mitigate
the amounts or benefits required to be provided pursuant to this Section 4.5(b),
nor shall any such amounts or benefits be reduced or offset by any other amounts
to which Executive may become entitled; provided, that if the Executive becomes
employed by a new employer or self-employed prior to the end of the Severance
Period, up to one-half of the Base Salary and bonuses payable to the Executive
pursuant to this Section 4.5(b) shall be reduced by an amount equal to the
amount earned from such employment with respect to that period (and the
Executive shall be required to return to the Company, without interest, any
amount by which such payments pursuant to Section this 4.5(b) exceed the Base
Salary and bonuses to which the Executive is entitled after giving effect to
that reduction) and, if the Executive becomes eligible to receive medical or
other welfare benefits under another employer provided plan, the corresponding
medical and other welfare benefits provided under this Section 4.5(b) shall be
terminated. As a condition to the Executive receiving the payments under Section
4.5(b), the Executive agrees to permit verification of his employment records
and Federal income tax returns by an independent attorney or accountant,
selected by the Company but reasonably acceptable to the Executive, who agrees
to preserve the confidentiality of the information disclosed by the Executive
except to the extent required to permit the Company to verify the amount
received by Executive from other active employment.
(c) If the Term is terminated by the Executive pursuant to
Section 4.4(a), or by the Company other than pursuant to Section 4.1, 4.2 or
4.3, or if the Term expires on the Scheduled Expiration Date as a result of the
Company giving a Notice of Nonrenewal and, in any such event, such termination
occurs upon or following the occurrence of a Third Party Change in Control or in
contemplation of a Third Party Change in Control, the Company shall thereafter
provide the Executive (i) an amount equal to two (2) times the sum of (x) the
then current Base Salary and (y) the average of the two most recent annual
bonuses paid (treating any annual bonus which is not paid as a result of the
Executive's failure to attain the Bonus Performance Goals as having been paid in
an amount equal to zero) to the Executive during the Term (or if only one annual
bonus has been paid, the amount of that annual bonus, and if that termination
occurs prior to the time at which the bonus for 1999 is paid,$390,000), to be
paid in a lump sum within 30 days after the date of termination, and (ii) fringe
benefits in the manner and amounts specified in Section 3.5 until the later of
the third anniversary of the Effective Date or the second anniversary of the
date of termination or, with respect to medical
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and other welfare benefits, when the Executive becomes eligible to receive
medical or other welfare benefits under another employer provided plan if sooner
than the later of the third anniversary of the Effective Date or the second
anniversary of the date of termination. In addition, all equity arrangements
provided to the Executive hereunder or under any employee benefit plan of the
Company shall vest immediately on the date of termination unless vesting is
accelerated to an earlier date upon the occurrence of the Third Party Change in
Control as described in Schedule I.
(d) For purposes of this Agreement, a Third Party Change in
Control shall be deemed to have occurred if (i) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than an Excluded Person or
Excluded Group (as defined below) (hereinafter, a "Third Party"), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote in the election of directors of the
Company, (ii) the Company is a party to any merger, consolidation or similar
transaction as a result of which either (x) the Company's common stock ceases to
be listed on a national securities exchange or on NASDAQ or (y) the shareholders
of the Company immediately prior to such transaction beneficially own securities
of the surviving entity representing less than fifty percent (50%) of the
combined voting power of the surviving entity's outstanding securities entitled
to vote in the election of directors of the surviving entity, or (iii) all or
substantially all of the assets of the Company are acquired by a Third Party.
"Excluded Group" means a "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) that (i) includes one or more Excluded Persons;
provided that the voting power of the voting stock of the Company "beneficially
owned" (as such term is used in Rule 13d-3 promulgated under the Exchange Act)
by such Excluded Persons (without attribution to such Excluded Persons of the
ownership by other members of the "group") represents a majority of the voting
power of the voting stock "beneficially owned" (as such term is used in Rule
13d-3 promulgated under the Exchange Act) by such group or (ii) exists solely by
virtue of the fact that the members of such group are parties to the
Stockholders' Agreement. "Excluded Person" means (i) while the Stockholders
Agreement is in effect in substantially its current form, any person or entity
who or which is a party to the Stockholders Agreement as of the Effective Date
and any affiliate of such a party to the Stockholders Agreement who becomes a
party to the Stockholders Agreement, and (ii) Isaac Perlmutter and Avi Arad or
any of their affiliates.
(e)(i) If any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the
"Code")), to the Executive or for the Executive's benefit paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, the Executive's employment with
the Company or a change in ownership or effective control of the Company or of a
substantial portion of its assets (a "Parachute Payment" or "Parachute
Payments"), would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the
855858.6
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Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties, other than interest
and penalties imposed by reason of the Executive's failure to file timely a tax
return or pay taxes shown to be due on the Executive's return), including any
Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Parachute
Payments.
(ii) An initial determination as to whether a Gross-Up
Payment is required pursuant to this Agreement and the amount of such Gross-Up
Payment shall be made at the Company's expense by the Company's regular outside
auditors (the "Accounting Firm"). The Accounting Firm shall provide its
determination (the "Determination"), together with detailed supporting
calculations and documentation to the Company and the Executive within ten days
of the Termination Date if applicable, or promptly upon request by the Company
or by the Executive (provided the Executive reasonably believes that any of the
Parachute Payments may be subject to the Excise Tax) and if the Accounting Firm
determines that no Excise Tax is payable by the Executive with respect to a
Parachute Payment or Parachute Payments, it shall furnish the Executive with an
opinion reasonably acceptable to the Executive that no Excise Tax will be
imposed with respect to any such Parachute Payment or Parachute Payments. Within
ten days of the delivery of the Determination to the Executive, the Executive
shall have the right to dispute the Determination (the "Dispute"). The Gross-Up
Payment, if any, as determined pursuant to this Section 4.5(e)(ii) shall be paid
by the Company to the Executive within ten days of the receipt of the Accounting
Firm's determination notwithstanding the existence of any Dispute. If there is
no Dispute, the Determination shall be binding, final and conclusive upon the
Company and the Executive subject to the application of Section 4.5(e)(iii)
below. The Company and the Executive shall resolve any Dispute in accordance
with the terms of this Agreement.
(iii) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, the parties acknowledge that it is possible
that a Gross-Up Payment (or a portion thereof) will be paid which should not
have been paid (an "Excess Payment") or a Gross-Up Payment (or a portion
thereof) which should have been paid will not have been paid (an
"Underpayment"). An Underpayment shall be deemed to have occurred (i) upon
notice (formal or informal) to the Executive from any governmental taxing
authority that the Executive's tax liability (whether in respect of the
Executive's current taxable year or in respect of any prior taxable year) may be
increased by reason of the imposition of the Excise Tax on a Parachute Payment
or Parachute Payments with respect to which the Company has failed to make a
sufficient Gross-Up Payment, (ii) upon a determination by a court, (iii) by
reason of determination by the Company (which shall include the position taken
by the Company, together with its consolidated group, on its federal income tax
return) or (iv) upon the resolution of the Dispute to the Executive's
satisfaction. If an Underpayment occurs, the Executive shall promptly notify the
Company and the Company shall promptly, but in any
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event, at least five days prior to the date on which the applicable government
taxing authority has requested payment, pay to the Executive an additional
Gross-Up Payment equal to the amount of the Underpayment plus any interest and
penalties (other than interest and penalties imposed by reason of the
Executive's failure to file timely a tax return or pay taxes shown to be due on
the Executive's return) imposed on the Underpayment. An Excess Payment shall be
deemed to have occurred upon a "Final Determination" (as hereinafter defined)
that the Excise Tax shall not be imposed upon a Parachute Payment or Parachute
Payments (or portion thereof) with respect to which the Executive had previously
received a Gross-Up Payment. A "Final Determination" shall be deemed to have
occurred when the Executive has received from the applicable government taxing
authority a refund of taxes or other reduction in the Executive's tax liability
by reason of the Excise Payment and upon either (x) the date a determination is
made by, or an agreement is entered into with, the applicable governmental
taxing authority which finally and conclusively binds the Executive and such
taxing authority, or in the event that a claim is brought before a court of
competent jurisdiction, the date upon which a final determination has been made
by such court and either all appeals have been taken and finally resolved or the
time for all appeals has expired or (y) the statute of limitations with respect
to the Executive's applicable tax return has expired. If an Excess Payment is
determined to have been made, the amount of the Excess Payment shall be treated
as a loan by the Company to the Executive and the Executive shall pay to the
Company on demand (but not less than 10 days after the determination of such
Excess Payment and written notice has been delivered to the Executive) the
amount of the Excess Payment plus interest at an annual rate equal to the
Applicable Federal Rate provided for in Section 1274(d) of the Code from the
date the Gross- Up Payment (to which the Excess Payment relates) was paid to the
Executive until the date of repayment to the Company.
(iv) Notwithstanding anything contained in this Agreement
to the contrary, in the event that, according to the Determination, an Excise
Tax will be imposed on any Parachute Payment or Parachute Payments, the Company
shall pay to the applicable government taxing authorities as Excise Tax
withholding, the amount of the Excise Tax that the Company has actually withheld
from the Parachute Payment or Parachute Payments or the Gross Up Payment.
5. Protection of Confidential Information; Non-Competition
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, as well as plans for
future developments by the Company, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know how",
trade secrets, customer lists, pricing policies, operational methods, technical
processes, formulae, inventions and research projects, and other business
affairs of the Company ("Confidential Information"),
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learned by the Executive heretofore or hereafter, and not to use or disclose
them to anyone outside of the Company, either during or after the Executive's
employment with the Company, except in the course of performing the Executive's
duties hereunder or with the Company's express written consent; provided,
however, that the restrictions of this Section 5.1.1 shall not apply to that
part of the Confidential Information that the Executive demonstrates is or
becomes generally available to the public other than as a result of a disclosure
by the Executive or is available, or becomes available, to the Executive on a
non-confidential basis, but only if the source of such information is not
prohibited from transmitting the information to the Executive by a contractual,
legal, fiduciary, or other obligation; and
5.1.2 To deliver promptly to the Company on termination of
the Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's business
and all property associated therewith, which the Executive may then possess or
have under the Executive's control.
5.2 For a period of one (1) year after he ceases to be
employed by the Company under this Agreement or otherwise, if such cessation
arises pursuant to Section 4.3, or as a result of termination by the Executive
which is not pursuant to Section 4.4 or is otherwise in breach of this
Agreement, the Executive shall not, directly or indirectly, enter the employ of,
or render any services to, any person, firm or corporation engaged in any
business competitive with the business of the Company or of any of its
subsidiaries or affiliates; the Executive shall not engage in such business on
the Executive's own account; and the Executive shall not become interested in
any such business, directly or indirectly, as an individual, partner,
shareholder, director, officer, principal, agent, employee, trustee, consultant,
or in any other relationship or capacity; provided, however, that nothing
contained in this Section 5.2 shall be deemed to prohibit the Executive from
acquiring, solely as an investment, up to five percent (5%) of the outstanding
shares of capital stock of any public corporation or during such one (1) year
period, taking a position with a business the main business of which is the sale
of retail products to customers.
5.3 If the Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the
Company shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not provide
an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively "Benefits") derived or
received by the Executive as the result of any
855858.6
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transactions constituting a breach of any of the provisions of Section 5.2
hereof, and the Executive hereby agrees to account for and pay over such
Benefits to the Company. Each of the rights and remedies enumerated above shall
be independent of the other, and shall be severally enforceable, and all of such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or
5.2 hereof, or any part thereof, hereafter are construed to be invalid or
unenforceable, the same shall not affect the remainder of the covenant or
covenants, which shall be given full effect, without regard to the invalid
portions.
5.5 If any of the covenants contained in Sections 5.1 or
5.2 hereof, or any part thereof, are held to be unenforceable because of the
duration of such provision or the area covered thereby, the parties hereto agree
that the court making such determination shall have the power to reduce the
duration and/or area of such provision and, in its reduced form, said provision
shall then be enforceable.
5.6 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 hereof
upon the courts of any state within the geographical scope of such covenants. In
the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination not
bar or in any way affect the Company's right to the relief provided above in the
courts of any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding
in law or in equity is brought to enforce the covenants contained in Sections
5.1 and 5.2 hereof or to obtain money damages for the breach thereof, and such
action results in the award of a judgment for money damages or in the granting
of any injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive in
such action, suit or other proceeding shall (on demand of the Executive) be paid
by the Company.
6. Inventions and Patents.
The Executive agrees that all processes, technologies and
inventions, including new contributions, improvements, ideas and discoveries,
whether patentable or not, conceived, developed, invented or made by him during
his employment by the Company or for one year thereafter (collectively,
"Inventions") shall belong to the Company, provided that such
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Inventions grew out of the Executive's work with the Company or any of its
subsidiaries or affiliates, are related to the business (commercial or
experimental) of the Company or any of its subsidiaries or affiliates or are
conceived or made on the Company's time or with the use of the Company's
facilities or materials. The Executive shall promptly disclose such Inventions
to the Company and shall, subject to reimbursement by the Company for all
reasonable expenses incurred by the Executive in connection therewith, (a)
assign to the Company, without additional compensation, all patent and other
rights to such Inventions for the United States and foreign countries; (b) sign
all papers necessary to carry out the foregoing; and (c) give testimony in
support of the Executive's inventorship.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
his employment, free and clear of any claims by the Executive (or anyone
claiming under the Executive) of any kind or character whatsoever (other than
the Executive's right to receive payments hereunder). The Executive shall, at
the request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its right,
title or interest in or to any such properties.
8. Indemnification.
To the fullest extent permitted by applicable law,
Executive shall be indemnified and held harmless for any action or failure to
act in his capacity as an officer or employee of the Company or any of its
affiliates or subsidiaries. In furtherance of the foregoing and not by way of
limitation, if Executive is a party or is threatened to be made a party to any
suit because he is an officer or employee of the Company or such affiliate or
subsidiary, he shall be indemnified against expenses, including reasonable
attorney's fees, judgments, fines and amounts paid in settlement if he acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interest of the Company, and with respect to any criminal action or
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Indemnification under this Section 8 shall be in addition to any other
indemnification by the Company of its officers and directors. Expenses incurred
by Executive in defending an action, suit or proceeding for which he claims the
right to be indemnified pursuant to this Section 8 shall be paid by the Company
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of Executive to repay such amount in
the event that it shall ultimately be determined that he is not entitled to
indemnification by the Company. Such undertaking shall be accepted without
reference to the financial ability of Executive to make repayment. The
provisions of this Section 8 shall apply as well to the
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Executive's actions and omissions as a trustee of any employee benefit plan of
the Company, its affiliates or subsidiaries.
9. Arbitration; Legal Fees
Except with respect to injunctive relief under Section 5 of
this Agreement, any dispute or controversy arising out of or relating to this
Agreement shall be resolved exclusively by arbitration in New York City in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Judgment on the award may be entered in any court
having jurisdiction thereof. The Company shall reimburse the Executive's
reasonable costs and expenses incurred in connection with any arbitration
proceeding pursuant to this Section 9 if the Executive is the substantially
prevailing party in that proceeding.
10. Notices.
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified mail
(notices mailed shall be deemed to have been given on the date mailed), as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):
If to the Company, to:
Marvel Enterprises, Inc.
387 Park Avenue South
New York, New York 10016
Attention: General Counsel
If to the Executive, to:
F. Peter Cuneo
27 Old Hattertown Road
Redding, Connecticut 06896
11. General.
11.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York, without regard to the
conflict of law principles of such state.
11.2 The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
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11.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this Agreement,
and neither party shall be bound by or liable for any alleged representation,
promise or inducement not so set forth. This Agreement expressly supersedes all
agreements and understandings between the parties regarding the subject matter
hereof and any such agreement is terminated as of the date first above written.
11.4 This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations, hereunder (i) to any affiliate
or (ii) to third parties in connection with any sale, transfer or other
disposition of all or substantially all of its business or assets; in any event
the obligations of the Company hereunder shall be binding on its successors or
assigns, whether by merger, consolidation or acquisition of all or substantially
all of its business or assets.
11.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by either
party of the breach of any term or covenant contained in this Agreement, whether
by conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver of
the breach of any other term or covenant contained in this Agreement.
11.6 This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
12. Subsidiaries and Affiliates.
As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
Company or other business entity in question, and the term "affiliate" shall
mean and include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the Company or other
business entity in question.
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IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
COMPANY:
MARVEL ENTERPRISES, INC.
By: /s/ MORTON HANDEL
--------------------------------------
Morton Handel
Chairman of the Board
EXECUTIVE:
/s/ F. PETER CUNEO
--------------------------------------
F. Peter Cuneo
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SCHEDULE I
Additional Benefits:
- --------------------
1. Automobile Allowance. The Executive shall be eligible
for an automobile allowance in the amount of $1,500 per month in accordance with
the Company's policy.
2. Stock Option Plan. The Executive will be granted, as
of the Effective Date, 750,000 options to purchase shares (the "Shares") of the
common stock, par value $.01 per share, of the Company pursuant to the terms of
the Marvel Enterprises, Inc. Stock Option Plan (the "Stock Option Plan")and
related Stock Option Agreement subject to the terms and conditions approved by
the committee of the Board of Directors of the Company which administers the
Stock Option Plan. The options shall be scheduled to vest as to one-quarter of
the Shares on the Effective Date and on each of the first, second and third
anniversaries of the Effective Date, shall vest as to all of the Shares upon a
Third Party Change in Control and shall be subject to all other terms and
conditions of the Stock Option Plan and the related Stock Option Agreement
between the Company and the Executive. The Executive's participation in the
Stock Option Plan shall not be, or be deemed to be, a fringe benefit or
additional benefit for purposes of Section 4.5(b)(iv) of this Agreement, and the
Executive's stock option rights shall be governed strictly in accordance with
the Stock Option Plan and the related Stock Option Agreement. In the event of
any conflict between this Agreement and the Stock Option Plan and the related
Stock Option Agreement, or any ambiguity in any such agreements, the Stock
Option Plan and the related Stock Option Agreement shall control.
3. Relocation Expenses. The Company shall provide the
Executive with a suitable one-bedroom apartment in Manhattan until the earlier
of the first anniversary of the Effective Date or the date the Executive
relocates his primary residence to a location in the New York City metropolitan
area. The Executive shall be reimbursed for real estate brokerage commissions of
up to five percent (5%) of the sale price of his current primary residence and
shall receive a $25,000 relocation allowance if the Executive relocates his
primary residence to a location in the New York City metropolitan area during
the Term. Reimbursement of real estate brokerage commissions shall be paid
promptly upon submission of documentation reasonably requested by the Company
and shall be "grossed-up" for any tax liability incurred by the Executive on
that reimbursement (or on the gross-up itself). Payment of the relocation
allowance shall be made promptly after the Executive's relocation.
4. Reimbursement of Legal Fees. The Executive shall be
reimbursed for his reasonable legal fees and expenses incurred in connection
with the review and negotiation of this Agreement.
855858.6
Exhibit 12
Statement re: Computation of Ratios
MARVEL ENTERPRISES, INC.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERENCE DIVIDENDS
SIX MONTHS ENDED JUNE 30, 1999
Fixed Charges and Preference Dividends:
Interest Expense - Gross 16,335
Interest on Rent Expense 438
-------
Total Fixed Charges 16,773
Preference Stock Dividends 6,968
-------
Total Fixed Charges and Preference Dividends 23,741
=======
Earnings:
Pretax (Loss) (9,396)
Fixed Charges 16,773
-------
Total Earnings before Preference Dividends 7,377
Preference Dividends 6,968
-------
Total Earnings 14,345
=======
Ratio of Earnings to Fixed Charges -
=======
Ratio of Earnings to Combined Fixed
Charges and Preference Dividends -
=======
For the purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preference dividends, earnings were
calculated by adding pretax income (loss), interest expense, the portion of
rents representative of an interest factor and, in the case of the latter ratio,
preference dividends. Fixed charges consist of interest expense and the portion
of rents representative of an interest factor. During the six months ended June
30, 1999, (i) earnings were insufficient to cover fixed charges and the dollar
amount of the coverage deficiency was $9.4 million and (ii) earnings were
insufficient to cover combined fixed charges and preference dividends and the
dollar amount of the coverage deficiency was $9.4 million.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from Marvel Enterprises,
Inc. Condensed Consolidated Balance Sheets and
Statements of Income and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000933730
<NAME> MARVEL ENTERPRISES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 99,545
<SECURITIES> 0
<RECEIVABLES> 63,234
<ALLOWANCES> 22,395
<INVENTORY> 30,568
<CURRENT-ASSETS> 181,025
<PP&E> 36,026
<DEPRECIATION> 19,750
<TOTAL-ASSETS> 700,779
<CURRENT-LIABILITIES> 78,659
<BONDS> 250,000
0
179,537
<COMMON> 408
<OTHER-SE> 164,251
<TOTAL-LIABILITY-AND-EQUITY> 700,779
<SALES> 136,768
<TOTAL-REVENUES> 136,768
<CGS> 63,481
<TOTAL-COSTS> 63,481
<OTHER-EXPENSES> 68,263
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,335
<INCOME-PRETAX> (9,396)
<INCOME-TAX> 1,070
<INCOME-CONTINUING> (10,466)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,531)
<CHANGES> 0
<NET-INCOME> (11,997)
<EPS-BASIC> (0.57)
<EPS-DILUTED> (0.57)
</TABLE>
