-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JfjuNXbnXA2CsT13fLdHY+WHCiiBXYUi6SVos1vh8CwPiLnNPoQLaFeLEaa1NuZW aLXvqjBIupNIJ82iuQM6CA== 0000903112-99-000901.txt : 19990810 0000903112-99-000901.hdr.sgml : 19990810 ACCESSION NUMBER: 0000903112-99-000901 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARVEL ENTERPRISES INC CENTRAL INDEX KEY: 0000933730 STANDARD INDUSTRIAL CLASSIFICATION: DOLLS & STUFFED TOYS [3942] IRS NUMBER: 133711775 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13638 FILM NUMBER: 99680485 BUSINESS ADDRESS: STREET 1: 387 PARK AVENUE SOUTH CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2125885100 MAIL ADDRESS: STREET 1: 685 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: TOY BIZ INC DATE OF NAME CHANGE: 19941213 10-Q 1 QUARTERLY REPORT ON FORM 10-Q 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 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 387 Park Avenue South, New York, NY 10016 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 212-696-0808 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 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. PART I. Financial Information Item 1. Financial Statements
MARVEL ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) June 30, December 31, 1999 1998 ---- ---- (unaudited) ASSETS 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.
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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 -------- -------- --------- ------- 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.
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MARVEL ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) Six Months Ended June 30, 1999 1998 ---- ---- 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.
4 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 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
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: 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 ==================== ====================
7 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 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 - --------------------------------
Licensing Publishing Toys Corporate Total -------- ---------- ---- --------- ----- (in thousands) 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
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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) 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
(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 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 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 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 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 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 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 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 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 EX-10.1 2 EMPLOYMENT AGREEMENT -- ROBERT S. HULL 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 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 -2- 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- 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- 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- 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 -6- 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 -7- 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 -8- 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 -9- 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 -10- 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 -11- 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 -12- 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 -13- 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 -14- 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 -15- 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 EX-10.2 3 EMPLOYMENT AGREEMENT -- ALAN FINE 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 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 -2- 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 818170.4 -3- 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 818170.4 -4- 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 818170.4 -5- 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 818170.4 -6- 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 818170.4 -7- 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 818170.4 -8- 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, 818170.4 -9- 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 818170.4 -10- 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 818170.4 -11- 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 818170.4 -12- 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 818170.4 -13- 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, 818170.4 -14- 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 818170.4 -15- 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. 818170.4 -16- EX-10.3 4 SEPARATION AGREEMENT -- ERIC ELLENBOGEN 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, 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 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 (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 (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 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 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 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 -2- EX-10.4 5 EMPLOYMENT AGREEMENT -- F. PETER CUNEO 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 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 -2- 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- 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 855858.6 -4- 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 855858.6 -5- 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 855858.6 -6- 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 -7- 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 855858.6 -8- 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"), 855858.6 -9- 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 -10- 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 855858.6 -11- 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 855858.6 -12- 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. 855858.6 -13- 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. 855858.6 -14- 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 855858.6 -15- 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 EX-12 6 STATEMENT RE: COMPUTATION OF RATIOS 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. EX-27 7 FDS
5 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. 0000933730 MARVEL ENTERPRISES, INC. 1,000 6-MOS DEC-31-1999 JUN-30-1999 99,545 0 63,234 22,395 30,568 181,025 36,026 19,750 700,779 78,659 250,000 0 179,537 408 164,251 700,779 136,768 136,768 63,481 63,481 68,263 0 16,335 (9,396) 1,070 (10,466) 0 (1,531) 0 (11,997) (0.57) (0.57)
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