UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MARVEL ENTERPRISES, INC.
(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form of Schedule and the date of its filing.
(1) Amount previously paid:
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(4) Date filed:
MARVEL ENTERPRISES, INC.
10 East 40th Street
New York, New York 10016
March 21, 2005
Dear Stockholder:
You are cordially invited to attend the 2005 Annual Meeting of
Stockholders of Marvel Enterprises, Inc., which will be held at 2:00 p.m., local
time, on Thursday, April 28, 2005 at the offices of Paul, Hastings, Janofsky &
Walker LLP, 75 East 55th Street, New York, New York. The matters to be acted
upon at the Annual Meeting are proposals to:
1. Approve and adopt a new stock incentive plan;
2. Approve and adopt a new cash incentive compensation plan;
3. Elect two of our directors;
4. Ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December
31, 2005; and
5. Transact such other business as may properly come before the
Annual Meeting.
The proposals referred to above are described in the attached Notice of
Annual Meeting of Stockholders and Proxy Statement. Whether or not you plan to
attend the Annual Meeting, we urge you to vote on the Internet or to complete,
date, sign and return your proxy card in the enclosed prepaid envelope as
promptly as possible so that your shares will be voted at the Annual Meeting.
This will not limit your right to vote in person or to attend the Annual
Meeting.
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To Vote by Internet
Read the Proxy Statement.
Go to the website (www.proxyvote.com) that appears on your
Proxy Card.
Enter the control number found in the shaded box on the front
of your Proxy Card and follow the simple instructions.
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The deadline for Internet voting is 11:59 p.m., Eastern Daylight Savings
Time, on April 27, 2005. I encourage you to vote via the Internet using the
control number that appears on the front of your Proxy Card and to choose to
receive future mailings electronically rather than on paper. Use of Internet
voting and electronic delivery will reduce the time and costs associated with
this, and future, proxies.
Sincerely,
/s/ Isaac Perlmutter
Isaac Perlmutter
Chief Executive Officer
MARVEL ENTERPRISES, INC.
10 East 40th Street
New York, New York 10016
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of Marvel Enterprises, Inc.:
Notice is hereby given that the 2005 Annual Meeting of Stockholders (the
"Annual Meeting") of Marvel Enterprises, Inc., a Delaware corporation (the
"Company"), will be held at 2:00 p.m., local time, on Thursday, April 28, 2005
at the offices of Paul, Hastings, Janofsky & Walker LLP, 75 East 55th Street,
New York, New York, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt a new stock
incentive plan;
2. To consider and vote upon a proposal to adopt a new cash incentive
compensation plan;
3. To consider and vote upon a proposal to elect two directors of the
Company to serve until the election and qualification of their
respective successors;
4. To consider and vote upon a proposal to ratify the appointment of
Ernst & Young LLP as the Company's independent accountants for the
fiscal year ending December 31, 2005; and
5. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The accompanying proxy statement describes the matters to be considered
at the Annual Meeting. The Board of Directors has fixed the close of business on
March 15, 2005 as the record date for determination of stockholders entitled to
notice of, and to vote at, the Annual Meeting and at any adjournments thereof. A
complete list of the stockholders entitled to vote at the Annual Meeting will be
available for inspection by any stockholder at the Annual Meeting. In addition,
the list of stockholders will be open for examination by any stockholder, for
any purpose germane to the Annual Meeting, during ordinary business hours, for a
period of ten days prior to the Annual Meeting, at the offices of the Company at
10 East 40th Street, New York, New York 10016 and after April 22, 2005, at the
offices of the Company at 417 Fifth Avenue, New York, New York 10016.
To ensure that your vote will be counted, please vote on the Internet or
complete, date, sign and return the enclosed proxy card promptly in the enclosed
prepaid envelope, whether or not you plan to attend the Annual Meeting. You may
revoke your proxy in the manner described in the proxy statement at any time
before the proxy has been voted at the Annual Meeting.
By Order of the Board of Directors,
/s/ Benjamin Dean
Benjamin Dean
Secretary
March 21, 2005
If you have any questions or need assistance in voting your shares, call
the Company's investor relations firm, Jaffoni & Collins at (212) 835-8500.
MARVEL ENTERPRISES, INC.
10 East 40th Street
New York, New York 10016
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PROXY STATEMENT
for the
2005 Annual Meeting of Stockholders
to be held on April 28, 2005
-------------------
This proxy statement is being furnished by and on behalf of the board of
directors (the "Board of Directors") of Marvel Enterprises, Inc., a Delaware
corporation (the "Company"), in connection with the solicitation of proxies to
be voted at the 2005 Annual Meeting of Stockholders (the "Annual Meeting") to be
held at 2:00 p.m., local time, on Thursday, April 28, 2005 at the offices of
Paul, Hastings, Janofsky & Walker LLP, 75 East 55th Street, New York, New York,
and at any adjournments or postponements thereof. This proxy statement and the
enclosed proxy card are being sent to stockholders on or about March 21, 2005.
At the Annual Meeting, stockholders will be asked to act on proposals
to:
(1) Approve and adopt a new stock incentive plan (the "Stock
Incentive Plan Proposal");
(2) Approve and adopt a new cash incentive compensation plan
(the "Cash Incentive Plan Proposal");
(3) Elect Sid Ganis and James F. Halpin as directors of the
Company to serve until the election and qualification of
their respective successors;
(4) Ratify the appointment of Ernst & Young LLP as the
Company's independent accountants for the fiscal year
ending December 31, 2005; and
(5) Transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement
thereof.
The principal offices of the Company are located at 10 East 40th Street,
New York, New York 10016, and the Company's telephone number is (212) 576-4000.
The Company intends to move its principal offices to 417 Fifth Avenue, New York,
New York 10016 on or around the time of the Annual Meeting. The Company's phone
number will not change.
Solicitation and Voting of Proxies; Revocation
All duly executed proxy cards received by the Company in time for the
Annual Meeting will be voted in accordance with the instructions given therein
by the person executing the proxy card. In the absence of instructions, duly
executed proxy cards will be voted FOR (1) the approval and adoption of the
Stock Incentive Plan Proposal, (2) the approval and adoption of the Cash
Incentive Plan Proposal, (3) the ratification of the appointment of Ernst &
Young LLP as the Company's independent accountants for the fiscal year ending
December 31, 2005, and (4) the election as a director of the Company of each of
the two nominees identified above. Any other matters that may properly come
before the meeting will be acted upon by the persons named in the accompanying
proxy in accordance with their discretion.
The submission of a signed proxy card will not affect a stockholder's
right to attend, or to vote in person at, the Annual Meeting. Stockholders who
execute a proxy card may revoke the proxy at any time before it is voted by (i)
filing a revocation with the Secretary of the Company, (ii) executing a proxy
card bearing a later date or (iii) attending the Annual Meeting and voting in
person. In accordance with applicable rules, boxes and a designated blank space
are provided on the proxy card for stockholders to mark if they wish either to
withhold authority to vote for some or all of the nominees for director of the
Company or to abstain from (1) the vote to approve and adopt the Stock Incentive
Plan Proposal, (2) the vote to approve and adopt the Cash Incentive Plan
Proposal, and/or (3) the vote to ratify the appointment of Ernst & Young LLP as
the Company's independent accountants for the fiscal year ending December 31,
2005. A stockholder's attendance at the Annual Meeting will not by itself revoke
a proxy given by such stockholder.
The cost of soliciting proxies will be borne by the Company. In addition
to soliciting proxies by mail, proxies may be solicited by the Company's
directors, officers and other employees by personal interview, telephone and
telegram. Such persons will receive no additional compensation for such
services. Jaffoni & Collins, the Company's investor relations firm, will be paid
a fee of $1,000 for their assistance in fielding stockholder questions regarding
the voting of their proxy. The Company requests that brokerage houses and other
custodians, nominees and fiduciaries forward solicitation materials to the
beneficial owners of shares of the Company's capital stock held of record by
such persons and will reimburse such brokers and other fiduciaries for their
reasonable out-of-pocket expenses incurred when the solicitation materials are
forwarded.
In some cases, only one copy of this proxy statement (and the
accompanying annual report) is being delivered to multiple stockholders sharing
an address unless the Company has received contrary instructions from one or
more of the stockholders. The Company will deliver promptly, upon written or
oral request, a separate copy of this proxy statement (and the annual report) to
a stockholder at a shared address to which a single copy of the document was
delivered. To request a separate delivery of these materials now or in the
future, a stockholder may submit a written request to the Secretary, Marvel
Enterprises, Inc., 10 East 40th Street, New York, New York 10016 (after April
30, please use the Company's new address: 417 Fifth Avenue, New York, New York
10016) or an oral request by calling (212) 576-4000, extension 8577.
Additionally, any stockholders who are currently sharing an address and
receiving multiple copies of either the proxy statement or the annual report and
who would rather receive a single copy of such materials may instruct the
Company accordingly by directing their request to the Company in the manner
provided above, or by contacting their broker.
Record Date
Only holders of record of shares of the Company's Common Stock (the
"Common Stock") at the close of business on March 15, 2005 (the "Record Date")
will be entitled to notice of, and to vote at, the Annual Meeting. On the Record
Date, there were issued and outstanding 105,307,005 shares of Common Stock, each
of which is entitled to one vote.
Vote Required to Approve Each Proposal
a) 2005 Stock Incentive Plan. Approval of the Stock Incentive Plan Proposal
requires both: (1) the affirmative vote of the holders of a majority of the
shares represented in person or by proxy and entitled to vote on the matter; and
(2) that the total vote cast represent a majority of the shares of Common Stock
outstanding on the Record Date. Abstentions will be counted as present in
determining whether a quorum exists, but will have the same effect as a vote
against a proposal. Broker non-votes will be counted as present in determining
whether a quorum exists, but will be disregarded in determining whether a
proposal has been approved. A "broker non-vote" will occur if you are a
beneficial stockholder and your broker
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holds your shares of Common Stock in its name and the broker does not receive
voting instructions from you.
b) 2005 Cash Incentive Plan. Approval of the Cash Incentive Plan Proposal
requires the affirmative vote of the holders of a majority of the shares
represented in person or by proxy and entitled to vote on the matter.
Abstentions will be counted as present in determining whether a quorum exists,
but will have the same effect as a vote against a proposal. Broker non-votes
will be counted as present in determining whether a quorum exists, but will be
disregarded in determining whether a proposal has been approved.
c) Election of Directors. The election of directors requires a plurality of the
votes of the shares present in person or represented by proxy at the Annual
Meeting and entitled to vote thereon. A properly executed proxy marked "Withhold
Authority" with respect to the election of one or more Directors will not be
voted with respect to the Director or Directors indicated, although it will be
counted for purposes of determining a quorum. If your broker holds your shares
of Common Stock in its name, the broker is permitted to vote your shares, if the
broker does not receive voting instructions from you, on the election of
directors. In tabulating the vote, abstentions and broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
d) Ratification of the Appointment of the Company's Independent Accountants.
Ratification of the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year 2005 requires the affirmative vote
of the holders of a majority of the shares represented in person or by proxy and
entitled to vote on the matter. Abstentions will be counted as present in
determining whether a quorum exists, but will have the same effect as a vote
against a proposal. Broker non-votes will be counted as present in determining
whether a quorum exists, but will be disregarded in determining whether a
proposal has been approved. If your broker holds your shares of Common Stock in
its name, the broker is permitted to vote your shares, if the broker does not
receive voting instructions from you, on the ratification of the appointment of
Ernst & Young LLP.
THE 2005 STOCK INCENTIVE PLAN PROPOSAL
The Board of Directors recommends that you vote to approve the 2005
Stock Incentive Plan (the "2005 Plan"). The Board and its Compensation Committee
(the "Compensation Committee") approved the 2005 Plan to help the Company:
o To attract, retain, motivate and reward, officers, employees and
directors of the Company and its subsidiaries and consultants and
advisors to the Company or its subsidiaries (collectively,
"Participants")
o To provide equitable and competitive compensation opportunities
o To promote creation of long-term value for stockholders by closely
aligning the interests of Participants with the interests of
stockholders.
The Board and the Compensation Committee believe that awards linked to
common stock provide incentives for the achievement of important performance
objectives and promote the long-term success of the Company. They view the 2005
Plan as a key element of the Company's overall compensation program.
The new 2005 Plan would make four million new shares of common stock
available for equity awards, representing approximately 3.80% of the Company's
shares outstanding at March 15, 2005. Assuming no change after that date in the
number of shares and equity awards outstanding, upon approval of the 2005 Plan
the total number of shares of Company common stock that will be available for
future awards under all equity compensation plans of the Company will be
approximately 6.6 million, or approximately 6.27% of the outstanding shares of
the Company's common stock. For more information on
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the total number of shares available under the Company's equity compensation
plans and subject to outstanding options, warrants and right as of the end of
the last fiscal year, see "Equity Compensation Plan Information" below. Shares
subject to outstanding awards under the Company's 1998 Stock Incentive Plan (the
"1998 Plan") may become available under the 2005 Plan if such shares are not
delivered to the Participant, in accordance with share counting rules explained
below under the caption "Share Counting."
If approved by stockholders, the 2005 Plan will replace the 1998 Plan,
so that shares would be available for future awards only under the 2005 Plan.
Shares that remain available under the 1998 Plan, approximately 2,600,000 shares
as of March 15, 2005, would be made available under the 2005 Plan. In that case,
no new awards would be granted under the 1998 Plan, although the Compensation
Committee retains full authority regarding outstanding awards under the 1998
Plan.
A summary of the material features of the 2005 Plan follows. It is
subject to, and you should also review, the full text of the 2005 Plan, which
can be found in Appendix A.
Overview of 2005 Plan Awards
The 2005 Plan authorizes a broad range of awards, including:
o stock options
o stock appreciation rights ("SARs")
o restricted stock, a grant of actual shares subject to a risk of
forfeiture and restrictions on transfer
o deferred stock, a contractual commitment to deliver shares at a
future date, which may or may not be subject to a risk of forfeiture
(forfeitable deferred stock is sometimes called "restricted stock
units")
o other awards based on common stock
o dividend equivalents
o performance shares or other stock-based performance awards (these
include deferred stock or restricted stock awards that may be earned
by achieving specific performance objectives)
o shares issuable in lieu of rights to cash compensation.
Reasons for Stockholder Approval
The Board seeks approval of the 2005 Plan by stockholders in order to
meet requirements of the New York Stock Exchange and to satisfy requirements of
tax law to help preserve the Company's ability to claim tax deductions for
compensation to executive officers. In addition, the Board regards stockholder
approval of the 2005 Plan to be consistent with corporate governance best
practices.
Section 162(m) of the Internal Revenue Code (the "Code") limits the
deductions a publicly held company can claim for compensation in excess of $1
million in a given year paid to the Chief Executive Officer and the four other
most highly compensated executive officers serving on the last day of the fiscal
year (these are referred to as the "Named Executive Officers").
"Performance-based" compensation that meets certain requirements is not counted
against the $1 million deductibility cap, and therefore remains fully
deductible. For purposes of Section 162(m), approval of the 2005 Plan will be
deemed to include approval of the general business criteria upon which
performance objectives for performance-based awards are based, described below
under the caption "Performance Awards." Stockholder approval of general business
criteria, without specific targeted levels of performance, will permit
qualification of incentive awards for full tax deductibility for a period of
five years under Section 162(m). Stockholder approval of the performance goal
inherent in stock options (increases in the market price of stock) is not
subject to a time limit under Section 162(m).
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In addition, stockholder approval will permit designated stock options
to qualify as incentive stock options under the Internal Revenue Code. Such
qualification can give the holder of the options more favorable tax treatment,
as explained below.
Restriction on Repricing
Consistent with the requirements of the New York Stock Exchange, the
2005 Plan includes a restriction providing that, without stockholder approval,
the Company will not amend or replace options previously granted under the 2005
Plan in a transaction that constitutes a "repricing." New York Stock Exchange
rules define a "repricing" as amending the terms of an option after it is
granted to lower its exercise price, any other action that is treated as a
repricing under generally accepted accounting principles, and canceling an
option at a time when its strike price is equal to or greater than the fair
market value of the underlying Stock, in exchange for another option (including
on a delayed basis), restricted stock, or other equity, unless the cancellation
and exchange occurs in connection with a merger, acquisition, spin-off or other
similar corporate transaction. Adjustments to the exercise price or number of
shares subject to an option to reflect the effects of a stock split or other
extraordinary corporate transaction will not constitute a "repricing."
Description of the 2005 Plan
Eligibility. Eligibility under the 2005 Plan will be the same as
eligibility under the 1998 Plan. Officers, employees and directors of the
Company and its subsidiaries and consultants and advisors to the Company or its
subsidiaries will be eligible for awards. Any person who is offered employment
will also be eligible but cannot receive any benefit under his or her award
until after beginning employment with the Company or a subsidiary or affiliate.
Presently, approximately 230 employees and seven directors (as well as
consultants and advisors to the Company) would be eligible for awards under the
2005 Plan.
Shares Reserved Under the 2005 Plan. If the 2005 Plan is approved by the
Company's stockholders, four million shares will be reserved for delivery to
Participants, plus shares remaining available for new grants under the 1998 Plan
plus shares "recaptured" from outstanding awards under the 1998 Plan. Shares
used for awards assumed in an acquisition do not count against the shares
reserved under the 2005 Plan. The 2005 Plan also limits the aggregate number of
shares that may be delivered in connection with awards granted to non-employee
directors to twenty percent of the total shares reserved under the 2005 Plan.
On March 15, 2005, the closing sale price of the Company's common stock
was $ 19.11 per share.
Share Counting. The 2005 Plan provides share counting rules that affect
the shares reserved and govern how shares are counted against the number
reserved. Only the number of shares actually delivered to a Participant in
connection with an award, after any risk of forfeiture has lapsed, will be
counted against the number of shares reserved under the 2005 Plan. Thus, if an
award expires unexercised or is forfeited, the shares subject to the award will
be remain available under the 2005 Plan. In addition, if shares are not
delivered because the award is settled in cash or for a net number of shares, or
if shares are surrendered or withheld to pay the exercise price or taxes
relating to the award, those shares will remain available for new awards. Awards
may be outstanding relating to a greater number of shares than the aggregate
remaining available so long as such awards will not result in delivery and
vesting of shares in excess of the number then available under the 2005 Plan.
Shares delivered under the 2005 Plan may be either newly issued or treasury
shares.
Per-Person Award Limitations. The 2005 Plan includes a limitation on the
amount of awards that may be granted to any one Participant in a given year in
order to qualify awards as "performance-based"
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compensation not subject to the limitation on deductibility under Code Section
162(m). Under this annual per-person limitation, no Participant may in any year
be granted awards under the 2005 Plan relating to more than his or her "Annual
Limit." The Annual Limit equals two million shares plus the amount of the
Participant's unused Annual Limit as of the close of the previous year, subject
to adjustment for splits and other extraordinary corporate events. The 2005 Plan
also provides that in any five-year period a non-employee director may be
granted awards relating to no more than 250,000 shares. All of these per-person
limits apply only to awards under the 2005 Plan, and do not limit the Company's
ability to enter into compensation arrangements outside of the 2005 Plan.
Adjustments. The Plan authorizes the Compensation Committee to make
equitable adjustments to the number and kind of shares subject to the share
limitations, including the total shares reserved and available, individual
Participants' share-based Annual Limits in the event of a recapitalization,
forward or reverse split, stock dividend, reorganization, merger, consolidation,
spin-off, combination, repurchase, share exchange, large special and
non-recurring dividend or distribution (whether in the form of cash or property
other than common stock), liquidation, dissolution or other similar corporate
transaction or event affecting the common stock. In the case of outstanding
awards, the Compensation Committee must adjust such awards upon the occurrence
of these types of events so as to preserve, without enlarging, the rights of
Participants. Such adjustments may include appropriate changes to exercise
prices or other award terms, in addition to changes in the number and kind of
shares subject to the award. The Compensation Committee is also authorized to
adjust performance conditions and other terms of awards in response to these
kinds of events or to changes in applicable laws, regulations, or accounting
principles, except that adjustments to awards intended to qualify as
"performance-based" generally must conform to requirements imposed by Section
162(m).
Administration. The 2005 Plan will be administered by the Compensation
Committee, except that the Board may, consistent with governing law and the
Company's corporate governance documents, itself act to administer the 2005
Plan. The Board must perform the functions of the Compensation Committee for
purposes of granting awards to non-employee directors. (References to the
"Committee" here mean the Committee or the full Board exercising authority with
respect to a given award.) The composition and governance of the Committee will
be established in the Compensation Committee's charter, and the Board and
Committee are subject to applicable New York Stock Exchange rules, which among
other things require that independent directors make determinations regarding
the Chief Executive Officer's compensation. Subject to the terms and conditions
of the 2005 Plan, the Committee is authorized to select Participants, determine
the type and number of awards to be granted and the number of shares to which
awards will relate or the amount of a performance award, specify times at which
awards will be exercisable or settled, including performance conditions that may
be required as a condition thereof, set other terms and conditions of such
awards, prescribe forms of award agreements, interpret and specify rules and
regulations relating to the 2005 Plan, and make all other determinations which
may be necessary or advisable for the administration of the 2005 Plan. In
addition, the Committee may delegate its authority under the 2005 Plan to the
extent permitted by the Delaware General Corporation Law, except delegation is
limited with respect to awards to executive officers where necessary to meet
requirements under Rule 16b-3(d) under the Securities Exchange Act of 1934 or
Code Section 162(m). Nothing in the 2005 Plan precludes the Committee from
authorizing payment of other compensation, including bonuses based upon
performance, to officers and employees, including the executive officers,
outside of the 2005 Plan. The 2005 Plan provides that member of the Committee
and the Board of Directors shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination, or interpretation
taken or made in good faith under the 2005 Plan.
Stock Options and Stock Appreciation Rights. The Committee is authorized
to grant stock options, including both incentive stock options, which can result
in potentially favorable tax treatment to the Participant, and non-qualified
stock options. Stock appreciation rights may also be granted, entitling the
6
Participant to receive the excess of the fair market value of a share on the
date of exercise over the stock appreciation right's designated "base price."
The exercise price of an option and the base price of a stock appreciation right
are determined by the Committee, but generally may not be less than the fair
market value of the shares on the date of grant except as described below under
"Other Terms of Awards". The maximum term of each option or stock appreciation
right will be ten years. Subject to this limit, the times at which each option
or stock appreciation right will be exercisable and provisions requiring
forfeiture of unexercised options or stock appreciation rights (and in some
cases gains realized by exercise of the award) at or following termination of
employment or upon the occurrence of other events generally are fixed by the
Committee. Options may be exercised by payment of the exercise price in cash,
shares having a fair market value equal to the exercise price or surrender of
outstanding awards or other property having a fair market value equal to the
exercise price, as the Committee may determine. This may include withholding of
option shares to pay the exercise price if that would not result in additional
accounting expense to the Company. The Committee also may permit broker-assisted
cashless exercises. Methods of exercise and settlement and other terms of stock
appreciation rights will be determined by the Committee. Stock appreciation
rights may be exercisable for shares or for cash, as determined by the
Committee. Options and stock appreciation rights may be granted on terms that
cause such awards not to be subject to Code Section 409A. Alternatively, such
awards and cash stock appreciation rights may have terms that cause those awards
to be deemed deferral arrangements subject to Code Section 409A. The Committee
may require that outstanding options be surrendered in exchange for a grant of
stock appreciation rights with economically equivalent terms.
Restricted and Deferred Stock. The Committee is authorized to grant
restricted stock and deferred stock. Prior to the end of the restricted period,
shares granted as restricted stock may not be sold, and will be forfeited in the
event of termination of employment in specified circumstances. The Committee
will establish the length of the restricted period for awards of restricted
stock. Awards may vest on an accelerated basis in the event of death,
disability, or retirement, or a change in control or other special
circumstances. Aside from the risk of forfeiture and non-transferability, an
award of restricted stock entitles the Participant to the rights of a
stockholder of the Company, including the right to vote the shares and to
receive dividends (which may be forfeitable or non-forfeitable), unless
otherwise determined by the Committee.
Deferred stock gives a Participant the right to receive shares at the
end of a specified deferral period. Deferred stock subject to forfeiture
conditions may be denominated as an award of "restricted stock units." The
Committee will establish any vesting requirements for deferred stock granted for
continuing services. One advantage of deferred stock, as compared to restricted
stock, is that the period during which the award is deferred as to settlement
can be extended past the date the award becomes non-forfeitable, so the
Committee can require or permit a Participant to continue to hold an interest
tied to common stock on a tax-deferred basis. Prior to settlement, deferred
stock awards carry no voting or dividend rights or other rights associated with
stock ownership, but dividend equivalents (which may be forfeitable or
non-forfeitable) will be paid or accrue if authorized by the Committee.
Other Stock-Based Awards, Stock Bonus Awards, and Awards in Lieu of
Other Obligations. The 2005 Plan authorizes the Committee to grant awards that
are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to common stock. The Committee will determine the
terms and conditions of such awards, including the consideration to be paid to
exercise awards in the nature of purchase rights, the periods during which
awards will be outstanding, and any forfeiture conditions and restrictions on
awards. In addition, the Committee is authorized to grant shares as a bonus free
of restrictions, or to grant shares or other awards in lieu of obligations under
the 2005 Plan or other plans or compensatory arrangements, subject to such terms
as the Committee may specify.
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Performance-Based Awards. The Committee may grant performance awards.
Performance awards generally require satisfaction of pre-established performance
goals, consisting of one or more business criteria and a targeted performance
level with respect to such criteria as a condition to awards being granted or
becoming exercisable or settleable, or as a condition to accelerating the timing
of such events. Performance may be measured over a period of any length
specified by the Committee. If so determined by the Committee, in order to avoid
the limitations on tax deductibility under Code Section 162(m), the business
criteria used by the Committee in establishing performance goals applicable to
performance awards to the Named Executive Officers will be selected from the
same list of performance-measurement criteria to be available under the proposed
2005 Incentive Compensation Plan. That list is as follows:
o net sales, revenues or royalties
o gross profit or pre-tax profit
o operating income, earnings before or after taxes, earnings before or
after interest, depreciation, amortization, or extraordinary or
special items
o net income or net income per common share (basic or fully diluted)
o return measures, including return on assets (gross or net), return on
investment, return on capital, or return on equity
o cash flow, free cash flow, cash flow return on investment (discounted
or otherwise), net cash provided by operations, or cash flow in
excess of cost of capital
o economic value created or economic profit
o operating margin or profit margin
o stockholder value creation measures, including stock price or total
stockholder return
o royalties or revenues from specific assets, projects, fees or
payments received or lines of business
o targets relating to expense or operating expense, working capital
targets, or operating efficiency
o strategic business criteria, consisting of one or more objectives
based on meeting specified goals relating to market penetration, new
projects, new products, new ventures, geographic business expansion,
cost targets, customer satisfaction, employee satisfaction, human
resources management, supervision of litigation and information
technology, and acquisitions or divestitures of subsidiaries,
affiliates or joint ventures.
o Any of the above listed performance criteria applied to specific
segment(s), division(s), subsidiary(y/ies) of the Company.
The Committee retains discretion to set the level of performance for a given
business criterion that will result in the earning of a specified amount under a
performance award. Performance may be measured in absolute terms, as a goal
relative to performance in prior periods, or as a goal compared to the
performance of one or more comparable companies or an index covering multiple
companies, or in other ways specified by the Committee. Goals may be set as to
specific segments or businesses within the Company or on a Company-wide basis.
Other Terms of Awards. Awards may be settled in cash, shares, other
awards or other property, in the discretion of the Committee. The Committee may
require or permit Participants to defer the settlement of all or part of an
award, including shares issued upon exercise of an option subject to compliance
with Code Section 409A, in accordance with such terms and conditions as the
Committee may establish, including payment or crediting of interest or dividend
equivalents on any deferred amounts. The Committee is authorized to place cash,
shares or other property in trusts or make other arrangements to provide for
payment of the Company's obligations under the 2005 Plan, but need not do so.
The Committee may condition awards on the payment of taxes, and may provide for
mandatory or elective withholding of a portion of the shares or other property
to be distributed in order to satisfy tax obligations.
8
Awards granted under the 2005 Plan generally may not be pledged or otherwise
encumbered and are not transferable except by will or by the laws of descent and
distribution, or to a designated beneficiary upon the Participant's death,
except that the Committee may permit transfers of awards other than incentive
stock options on a case-by-case basis. This flexibility can allow for estate
planning and other kinds of transfers consistent with the incentive purpose of
the 2005 Plan.
Awards under the 2005 Plan may be granted without a requirement that the
Participant pay consideration in the form of cash or property for the grant (as
distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant awards in substitution for, exchange for or as a
buyout of other awards under the 2005 Plan, awards under other Company plans, or
other rights to payment from the Company, and may exchange or buy out
outstanding awards for cash or other property. The Committee also may grant
awards in addition to and in tandem with other awards or rights. In granting a
new award, the Committee may determine that the in-the-money value or fair value
of any surrendered award may be applied to reduce the exercise price of any
option, base price of any stock appreciation right, or purchase price of any
other award.
Terms of awards set by the Committee, including exercise prices,
performance conditions and vesting conditions, generally will be reflected in
award agreements between the Company and the Participant. The 2005 Plan
authorizes the Committee to impose certain other restrictions, including
non-competition, non-solicitation and non-disclosure provisions, that govern the
behavior of Participants. The Committee can require compliance with these
restrictions as a pre-condition to a Participant's right to realize and retain
the benefit from 2005 Plan awards. If a Participant were to fail to comply with
such restrictions, the Company would have the right to recover specified amounts
of gain derived from awards by that Participant, and to cancel any awards then
held by the Participant.
Dividend Equivalents. The Committee may grant dividend equivalents.
These are rights to receive payments equal in value to the amount of dividends
paid on a specified number of shares of common stock while an award is
outstanding. These amounts may be in the form of cash or rights to receive
additional awards or additional shares of common stock having a value equal to
the cash amount. The awards may be granted on a stand-alone basis or in
conjunction with another award, and the Committee may specify whether the
dividend equivalents will be forfeitable or non-forfeitable. Typically, rights
to dividend equivalents are granted in connection with deferred stock, so that
the Participant can earn amounts equal to dividends paid on the number of shares
covered by the award while the award is outstanding.
Change in Control. The Committee is authorized to provide terms that
preserve the value of awards in the event of a transaction deemed by the
Committee to be a change in control of the Company, or upon a Participant's
termination of employment following a change in control. Such provisions could
include:
o accelerating vesting of awards
o accelerating the end of a deferral period
o providing that performance goals will be deemed to be achieved at a
specified level
o providing for an immediate cash settlement of outstanding awards, on
a mandatory or elective basis, by payment of the intrinsic value or
fair value of the award or a value determined in another manner
specified by the Committee.
Such provisions are limited, however, by applicable restrictions under Code
Section 409A.
Amendment and Termination of the 2005 Plan. The Board may amend,
suspend, discontinue, or terminate the 2005 Plan or the Committee's authority to
grant awards thereunder without stockholder approval, except as required by law
or regulation or under the New York Stock Exchange rules. New York
9
Stock Exchange rules require stockholder approval of any material revision to a
plan such as the 2005 Plan. Under these rules, however, stockholder approval
will not necessarily be required for amendments which might increase the cost of
the 2005 Plan. Unless earlier terminated, the authority of the Committee to make
grants under the 2005 Plan will terminate ten years after the latest stockholder
approval of the 2005 Plan, and the 2005 Plan will terminate when no shares
remain available and the Company has no further obligation with respect to any
outstanding award.
Federal Income Tax Implications of the 2005 Plan
The Company believes that under current law the following Federal income
tax consequences generally would arise with respect to awards under the 2005
Plan.
Options and stock appreciation rights that are not deemed to be deferral
arrangements under Code Section 409A would have the following tax consequences:
The grant of the option or stock appreciation right will create no federal
income tax consequences for the Participant or the Company. A Participant will
not have taxable income upon exercising an option which is an incentive stock
option, except that the alternative minimum tax may apply. Upon exercising an
option which is not an incentive stock option, the Participant generally must
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the freely transferable and nonforfeitable shares
acquired on the date of exercise. Upon exercising a stock appreciation right,
the Participant must generally recognize ordinary income equal to the cash or
the fair market value of the shares received.
Upon a disposition of shares acquired upon exercise of an incentive
stock option before the end of the applicable incentive stock option holding
periods, the Participant must generally recognize ordinary income equal to the
lesser of (i) the fair market value of the incentive stock option shares at the
date of exercise minus the exercise price or (ii) the amount realized upon the
disposition of the incentive stock option shares minus the exercise price.
Otherwise, a Participant's sale of shares acquired by exercise of an option
generally will result in short-term or long-term capital gain or loss measured
by the difference between the sale price and the Participant's tax "basis" in
such shares. The tax "basis" normally is the exercise price plus any amount he
or she recognized as ordinary income in connection with the option's exercise. A
Participant's sale of shares acquired by exercise of a stock appreciation right
generally will result in short-term or long-term capital gain or loss measured
by the difference between the sale price and the tax "basis" in the shares,
which generally is the amount he or she recognized as ordinary income in
connection with the stock appreciation right's exercise.
The Company normally can claim a tax deduction equal to the amount
recognized as ordinary income by a Participant in connection with an option or
stock appreciation rights, but no tax deduction relating to a Participant's
capital gains. Accordingly, the Company will not be entitled to any tax
deduction with respect to an incentive stock option if the Participant holds the
shares for the applicable incentive stock option holding periods before selling
the shares.
Some options or stock appreciation rights, such as those with deferral
features, and a stock appreciation right settleable in cash, may be subject to
Code Section 409A, which regulates deferral arrangements. In such case, the
distribution to the Participant of shares or cash relating to the award would
have to meet certain restrictions in order for the Participant not to be subject
to tax and a tax penalty at the time of vesting. One significant restriction
would be a requirement that the distribution not be controlled by the
Participant's discretionary exercise of the option or stock appreciation right
(subject to limited exceptions). If the distribution and other award terms meet
applicable requirements under Code Section 409A, the Participant would realize
ordinary income at the time of distribution rather than earlier, with the amount
of ordinary income equal to the distribution date value of the shares less any
exercise price actually
10
paid. The Company would not be entitled to a tax deduction at the time of
exercise, but would become entitled to a tax deduction at the time shares are
delivered at the end of the deferral period.
Awards other than options and stock appreciation rights that result in a
transfer to the Participant of cash or shares or other property generally will
be structured under the 2005 Plan to meet applicable requirements under Code
Section 409A. If no restriction on transferability or substantial risk of
forfeiture applies to amounts distributed to a Participant, the Participant
generally must recognize ordinary income equal to the cash or the fair market
value of shares actually received. Thus, for example, if the Company grants an
award of deferred stock that has vested or requires or permits deferral of
receipt of cash or shares under a vested award, the Participant should not
become subject to income tax until the time at which shares are actually
delivered, and the Company's right to claim a tax deduction will be deferred
until that time. On the other hand, if a restriction on transferability and
substantial risk of forfeiture applies to shares or other property actually
distributed to a Participant under an award (such as, for example, a grant of
restricted stock), the Participant generally must recognize ordinary income
equal to the fair market value of the transferred amounts at the earliest time
either the transferability restriction or risk of forfeiture lapses. In all
cases, the Company can claim a tax deduction in an amount equal to the ordinary
income recognized by the Participant, except as discussed below. A Participant
may elect to be taxed at the time of grant of restricted stock or other property
rather than upon lapse of restrictions on transferability or the risk of
forfeiture, but if the Participant subsequently forfeits such shares or property
he or she would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he or she previously paid
tax.
Any award that is deemed to be a deferral arrangement (excluding certain
exempted short-term deferrals) will be subject to Code Section 409A. Certain
Participant elections and the timing of distributions relating to such awards
must meet requirements under Code Section 409A in order for income taxation to
be deferred and tax penalties avoided by the Participant upon vesting of the
award.
As discussed above, compensation that qualifies as "performance-based"
compensation is excluded from the $1 million deductibility cap of Code Section
162(m), and therefore remains fully deductible by the company that pays it.
Under the 2005 Plan, options and stock appreciation rights granted with an
exercise price or base price at least equal to 100% of fair market value of the
underlying stock at the date of grant, and certain other awards which are
conditioned upon achievement of performance goals are intended to qualify as
such "performance-based" compensation. A number of requirements must be met in
order for particular compensation to so qualify, however, so there can be no
assurance that such compensation under the 2005 Plan will be fully deductible
under all circumstances. In addition, other awards under the 2005 Plan generally
will not so qualify, so that compensation paid to certain executives in
connection with such awards, to the extent it and other compensation subject to
Section 162(m)'s deductibility cap exceed $1 million in a given year, may not be
deductible by the Company as a result of Section 162(m).
The foregoing provides only a general description of the application of
federal income tax laws to certain awards under the 2005 Plan. This discussion
is intended for the information of stockholders considering how to vote at the
Meeting and not as tax guidance to Participants in the 2005 Plan, as the
consequences may vary with the types of awards made, the identity of the
recipients and the method of payment or settlement. Different tax rules may
apply, including in the case of variations in transactions that are permitted
under the 2005 Plan (such as payment of the exercise price of an option by
surrender of previously acquired shares). The summary does not address the
effects of other federal taxes (including possible "golden parachute" excise
taxes) or taxes imposed under state, local, or foreign tax laws.
11
New Plan Benefits Under the 2005 Plan
No awards have been granted under the 2005 Plan and any awards which
will be granted in the future will be at the discretion of the Committee.
Accordingly, the type, number, recipients, and other terms of such awards cannot
be determined at this time. The Company has not made any equity grant or the
vesting of any equity grant contingent upon stockholder approval of the 2005
Plan.
The Board of Directors unanimously recommends that stockholders vote FOR
the 2005 Stock Incentive Plan Proposal.
PROPOSAL TO APPROVE THE 2005 CASH INCENTIVE COMPENSATION PLAN
The Board of Directors recommends that you vote to approve the 2005 Cash
Incentive Compensation Plan (the "Cash Incentive Plan"). Such stockholder
approval will enable the Company to claim tax deductions for incentive awards
earned and paid under the Cash Incentive Plan without limitation under Section
162(m) of the Internal Revenue Code.
The Cash Incentive Plan will provide to executive officers the
opportunity to earn annual and long-term incentive awards. The Board of
Directors regards the Cash Incentive Plan as an important means by which the
Company can link executive pay to performance. By providing for competitive
levels of incentive compensation in a program that is fully tax deductible by
the Company, the Cash Incentive Plan will help the Company to attract, retain,
motivate and reward members of its senior management team.
Description of the Cash Incentive Plan
The following description of the Cash Incentive Plan is qualified in its
entirety by the provisions of the Cash Incentive Plan, a copy of which is
attached as Appendix B to this Proxy Statement.
The Cash Incentive Plan authorizes the Compensation Committee of the
Board to select participants, designate performance periods, authorize
performance awards that may be earned by achievement of performance goals during
the performance periods, and set the other terms of performance awards.
Employees who are or may become executive officers are eligible for selection
for participation in the Cash Incentive Plan. Currently, we have eight executive
officers. Awards may be settled in cash or delivery of shares of our common
stock or other property. If common stock is to be delivered in settlement of
awards, it will be drawn from the 1998 Plan, or if approved, the 2005 Plan or
another stockholder-approved equity compensation plan.
Particular restrictions will apply to any authorization of an award
intended to qualify as "performance-based compensation" under Section 162(m).
Performance goals and related terms of such an award must be established during
the first 90 days of the performance period, and during the first 25% of any
performance period shorter than one year. The Compensation Committee must
specify the amounts that may be earned corresponding to particular levels of
performance. For these awards, the Cash Incentive Plan permits the Compensation
Committee to measure performance using a variety of business criteria, including
the following:
o net sales, revenues or royalties
o gross profit or pre-tax profit
o operating income, earnings before or after taxes, earnings before or
after interest, depreciation, amortization, or extraordinary or
special items
o net income or net income per common share (basic or fully diluted)
12
o return measures, including, but not limited to, return on assets
(gross or net), return on investment, return on capital, or return on
equity
o cash flow, free cash flow, cash flow return on investment (discounted
or otherwise), net cash provided by operations, or cash flow in
excess of cost of capital
o economic value created or economic profit
o operating margin or profit margin
o stockholder value creation measures, including but not limited to
stock price or total stockholder return
o royalties or revenues from specific assets, projects, fees or
payments received or lines of business
o targets relating to expense or operating expense, working capital
targets, or operating efficiency
o strategic business criteria, consisting of one or more objectives
based on meeting specified goals relating to market penetration, new
projects, new products, new ventures, geographic business expansion,
cost targets, customer satisfaction, employee satisfaction, human
resources management, supervision of litigation and information
technology, and acquisitions or divestitures of subsidiaries,
affiliates or joint ventures.
o Any of the above listed performance criteria applied to specific
segment(s), division(s), or subsidiar(y/ies) of the Company.
The Compensation Committee retains discretion to set the level of
performance for a given business criterion that will result in the earning of a
specified amount under a performance award. Performance may be measured in
absolute terms, as a goal relative to performance in prior periods, or as a goal
compared to the performance of one or more comparable companies or an index
covering multiple companies, or in other ways specified by the Compensation
Committee.
A participant may potentially earn incentive awards up to his or her
"annual limit" in any calendar year. The annual limit for each individual is $10
million plus the amount of the participant's unused annual limit as of the close
of the previous calendar year. A participant uses up his or her annual limit in
a given year based on the maximum potential amount of the incentive award
authorized by the Compensation Committee, even if the actual amount earned is
less than the maximum.
In order for awards to become payable, the Compensation Committee must
determine the level of attainment of the pre-set performance goals and that
other material requirements have been met. For participants whose awards are
intended to qualify for full tax deductibility under Section 162(m), the
Compensation Committee retains discretion to adjust incentive awards downward,
but not upward, in determining the final award amount. For other participants,
both upward or downward adjustments are permitted. In exercising negative
discretion, the Committee may consider performance or other subjective factors
that cannot be included in a Section 162(m) qualifying goal; for an award
intended to qualify under Section 162(m), consideration of these additional
factors would be permissible only if a pre-set performance goal which qualifies
under 162(m) also has been achieved.
The Compensation Committee generally can specify the circumstances in
which awards will be paid or forfeited in the event of a change in control,
termination of employment by Marvel or other events. However, the Cash Incentive
Plan provides that, in the event of death, disability or retirement, the
participant will receive a pro rated incentive award, proportionate to the part
of the performance period worked by the participant, but based on actual
performance over the entire period, unless otherwise determined by the
Compensation Committee.
The Compensation Committee has authority to amend, alter, suspend, or
terminate the Cash Incentive Plan, but significant changes must be approved by
the Board. In addition, an amendment or
13
modification must be approved by stockholders if such approval is required under
applicable rules of the New York Stock Exchange. Under this standard, however,
amendments that might broaden eligibility or increase the cost of the Cash
Incentive Plan to the Company would not necessarily require stockholder
approval. Nothing in the Cash Incentive Plan precludes the Committee from
authorizing payment of other compensation, including bonuses based upon
performance, to officers and employees, including executive officers, outside of
the Cash Incentive Plan. The Cash Incentive Plan provides that members of the
Committee and the Board of Directors shall not be personally liable, and shall
be fully indemnified, in connection with any action, determination, or
interpretation taken or made in good faith under the Cash Incentive Plan.
Section 162(m) and Related Tax Matters
Under Section 162(m), our ability to claim a tax deduction for
compensation paid or accrued with respect to the executive officers named in the
Summary Compensation Table and serving as such on the final day of the fiscal
year, defined as "covered employees," is limited to $1 million per year. Certain
types of compensation are exempted from this deductibility limitation, however,
including performance-based compensation. "Performance-based compensation" is
compensation paid (1) upon the attainment of an objective performance goal or
goals, (2) upon approval by the Compensation Committee or its equivalent, which
committee must be composed of outside directors, and (3) pursuant to a plan as
to which stockholders have approved certain material terms, specifically the
eligibility, per-person limits, and the business criteria upon which the
performance goals are based. The Company intends certain awards to persons who
are potentially "covered employees" under the Cash Incentive Plan to qualify as
"performance-based compensation" so that these awards will not be subject to the
$1 million deductibility limitation. Accordingly, stockholder approval of the
Cash Incentive Plan will be deemed to include approval of the Cash Incentive
Plan's terms relating to eligibility, annual limitations on incentive awards,
and the business criteria upon which performance goals may be based.
Under federal income tax law and regulations, awards under the Cash
Incentive Plan will result in ordinary income to the participant at the time the
award is settled by payment of cash or delivery of transferable or
non-forfeitable shares or other property. Assuming that Section 162(m) will not
apply, the Company will be entitled at that time to a corresponding tax
deduction. Any award in which the settlement is deferred past the vesting date
(excluding certain exempted short-term deferrals) will be subject to Code
Section 409A. Deferral of settlement of awards may be permitted under a separate
deferral plan adopted by the Company, in which case participant elections and
the timing of distributions relating to such awards must meet requirements under
Code Section 409A in order for income taxation to be deferred and tax penalties
avoided by the participant upon vesting of the award.
New Plan Benefits Under the Cash Incentive Plan
Awards under the Cash Incentive Plan will be granted in the discretion
of the Compensation Committee. Except as described below, the recipients and
other terms of such awards cannot be determined at this time. Information
regarding our recent practices with respect to annual incentive awards under the
current programs is presented in the "Summary Compensation Table" and the
"Report on Executive Compensation" in this Proxy Statement. The Company may
authorize and pay cash and non-cash incentive awards under plans and
arrangements other than the Cash Incentive Plan.
We have authorized certain incentive awards to executive officers under
the Cash Incentive Plan, subject to stockholder approval of the Cash Incentive
Plan, in order that those awards can qualify for full deductibility if they are
subsequently earned and paid out. These are annual incentive awards for the 2005
fiscal year, which will become payable for 2005 performance if a corporate
performance goal relating to the criterion listed next to the executive officer
is achieved. If a specified level of this performance measure is
14
achieved, the level of achievement of certain individual goals will also be
considered to determine the final amount of the annual incentive award. No
amount will be payable unless a specified "threshold" performance level is
reached, and, where the "target" and the "maximum" rate differ, the award is
payable at the designated maximum rate only if performance substantially in
excess of the target performance level is achieved. The table below shows the
amounts payable under the Cash Incentive Plan upon achievement of specified
levels of performance for 2005:
New Plan Benefits
2005 Cash Incentive Compensation Plan
-------------------------------------
- ------------------------------ ---------------------- ----------- ------------- -------------------
Name and Position Performance Criterion Threshold Target ($) Max. ($)
Bonus ($)
- ------------------------------ ---------------------- ----------- ------------- -------------------
Avi Arad
Chief Creative Officer of
the Company and Chairman and (1)
CEO of Marvel Studios (3
authorized awards)
- ------------------------------ ---------------------- ----------- ------------- -------------------
Award 1 Company operating
income as a % of 500,000 1,000,000 1,000,000
budget
- ------------------------------ ---------------------- ----------- ------------- -------------------
Award 2 Net sales as a % of
budget 764,800 2,065,000 (1)
- ------------------------------ ---------------------- ----------- ------------- -------------------
Award 3 Achievement during
fiscal year of
specified worldwide 1,250,000 1,250,000 1,250,000
box office gross by
one or more movies
in which Mr. Arad
serves as Producer or
Executive Producer
- ------------------------------ ---------------------- ----------- ------------- -------------------
Alan Fine Operating income of
President and CEO of the the Company as a
Company's toy and publishing whole and the
divisions divisions that Mr. 187,500 750,000 (1)
Fine is responsible
for as a % of budget
- ------------------------------ ---------------------- ----------- ------------- -------------------
All current executive --- 2,702,300 5,065,000 (1)
officers as a group
- ------------------------------ ---------------------- ----------- ------------- -------------------
(1) As described above, the Cash Incentive Plan has a per Participant
limit of $10 million in any year plus the amount of the Participant's unused
annual limit as of the close of the previous calendar year. The Board of
Directors expects that the awards described above will not approach this
limitation.
The Board of Directors regards the Cash Incentive Plan as an important
means by which the Company can provide its most senior executive officers with
competitive compensation that is closely tied to the performance of the Company
and is tax deductible by the Company.
The authorized awards listed above will not be layered on top of Messrs.
Arad's and Fine's current employment agreements and bonus standards. Instead,
the Compensation Committee has evaluated the
15
existing arrangements and is currently negotiating new agreements that reflect
these new performance standards and update the executives' terms of employment.
The Company expects to enter into new employment agreements with Messrs. Arad
and Fine in the near future and to make such agreements publicly available on a
Form 8-K filed with the Securities and Exchange Commission. Further detail
regarding the terms of both the current and proposed agreements is contained in
the section of this proxy statement entitled "Employment Agreements".
In the event stockholders disapprove of the proposed 2005 Cash Incentive
Compensation Plan, no incentive awards will be earned or paid out under the Cash
Incentive Plan. The Company would, however, be able to pay bonuses and incentive
compensation under its current programs.
The Board of Directors unanimously recommends that stockholders vote FOR
the 2005 Cash Incentive Plan Proposal.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Audit Committee has appointed Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 2005, and has
directed that the appointment of the independent accountants be submitted for
ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has
audited the consolidated financial statements of the Company since its
formation. Representatives of Ernst & Young LLP are expected to be present at
the Annual Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
Stockholder ratification of the appointment of Ernst & Young LLP as the
Company's independent accountants is not required by the Company's Certificate
of Incorporation or By-Laws or otherwise. The Audit Committee is submitting the
appointment of Ernst & Young LLP to stockholders for ratification as a matter of
what it considers to be good corporate practice. If the stockholders fail to
ratify the appointment, the Audit Committee will reconsider whether or not to
retain Ernst & Young LLP.
Even if the appointment is ratified, the Audit Committee in its
discretion may direct the appointment of a different independent accounting firm
at any time during the year if the Audit Committee determines that such a change
would be in the interests of the Company and its stockholders.
The Audit Committee and the Board of Directors each unanimously
recommend that stockholders vote FOR the ratification of the appointment of
Ernst & Young LLP as the Company's independent accountants for 2005.
ELECTION OF DIRECTORS
Two directors will be elected at the Annual Meeting to serve until the
election and qualification of their respective successors. Each of the nominees
is currently a member of the Board of Directors. Proxy votes will not be voted
for a greater number of persons than the number of nominees named.
The Board of Directors has been informed that each of the nominees is
willing to serve as a director of the Company, but if any of them should decline
or be unable to act as a director, the individuals named as proxies on the
enclosed proxy card will vote for the election of such other person or persons
as they, in their discretion, may choose. The Board of Directors has no reason
to believe that any of the nominees will be unable or unwilling to serve.
16
Pursuant to the Company's By-Laws the election to the Board of Directors
of each of the two nominees identified in this proxy statement will require the
affirmative vote of the holders of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote.
The Board of Directors unanimously recommends that stockholders vote FOR
the election to the Board of Directors of Sid Ganis and James F. Halpin.
Nominees for Election as Directors
The Company's Board of Directors has three classes of directors with
staggered three-year terms. Morton E. Handel, F. Peter Cuneo and Isaac
Perlmutter were elected at the 2004 annual meeting of stockholders as Class III
directors to serve a three-year term. Avi Arad, Lawrence Mittman (since
resigned) and Richard L. Solar were elected at the 2003 annual meeting of
stockholders as Class II directors to serve a three-year term. Sid Ganis and
James F. Halpin were elected at the 2002 annual meeting of stockholders as Class
I directors to serve a three-year term, and are eligible for re-election to a
new three-year term at this Annual Meeting.
Set forth below is each nominee's name, age as of March 14, 2005,
principal occupation for the last five years, selected biographical information
and period of service as a director of the Company.
Sid Ganis (Class I), 65, has been a director of the Company since
October 1999. Mr. Ganis has been President of Out of the Blue...Entertainment, a
company that he founded, since September 1996. Out of the Blue...Entertainment
is a provider of motion pictures, television and musical entertainment for Sony
Pictures Entertainment and others. From January 1991 until September 1996, Mr.
Ganis held various executive positions with Sony Pictures Entertainment,
including Vice Chairman of Columbia Pictures and President of Worldwide
Marketing for Columbia/TriStar Motion Picture Companies.
James F. Halpin (Class I), 54, has been a director of the Company since
March 1995. Mr. Halpin retired in March 2000 as President and Chief Executive
Officer and a director of CompUSA Inc., a retailer of computer hardware,
software, accessories and related products, which he had been with since May
1993. Mr. Halpin is a director of Majesco Holdings, Inc. and Life Time Fitness
Inc.
Directors Whose Terms Are Continuing
For each member of the Board of Directors whose term of office as a
director continues after the Annual Meeting, set forth below is the director's
name, age as of March 14, 2005, principal occupation for the last five years,
selected biographical information and period of service as a director of the
Company.
Morton E. Handel (Class III), 69, has been the non-executive Chairman of
the Board of Directors of the Company since October 1998 and was first appointed
as a director of the Company in June 1997. Mr. Handel is a director of Linens `N
Things, Inc.
Avi Arad (Class II), 57, has been Chief Creative Officer of the Company
and Chairman and Chief Executive Officer of the Company's Marvel Studios
Division (which is responsible for motion picture and television licensing and
development) since October 1998. Mr. Arad has been a director of the Company
since April 1993. Mr. Arad is a producer or executive producer of each movie and
television project utilizing the Company's characters. Mr. Arad has been a toy
inventor and designer for more than 20 years. Mr. Arad is also the owner of Avi
Arad & Associates, a firm engaged in the design and development of toys and the
production and distribution of television programs.
17
F. Peter Cuneo (Class III), 60, was the Company's President and Chief
Executive Officer from July 1999 through December 2002 and served as the
part-time Special Advisor to the Company's Chief Executive Officer from January
2003 through December 2004. Mr. Cuneo has been a director of the Company since
July 1999, and since June 2003, he has served as a non-executive Vice Chairman
of the Board of Directors. Mr. Cuneo is also a director of Water Pik
Technologies, Inc. and of Majesco Holdings, Inc.
Isaac Perlmutter (Class III), 62, has been the Company's Chief Executive
Officer since January 1, 2005, has been employed by the Company as Vice Chairman
of the Board of Directors since November 2001, has been a director of the
Company since April 1993 and served as Chairman of the Board of Directors until
March 1995. Mr. Perlmutter purchased the Company's predecessor company in
January 1990. Mr. Perlmutter has been actively involved in the management of the
affairs of the Company since prior to his employment as Vice Chairman and has
been an independent financial investor for more than the past five years. As an
independent investor, Mr. Perlmutter has a controlling ownership interest in
Tangible Media, Inc., a media buying agency.
Richard L. Solar (Class II), 65, has been a director of the Company
since December 2002. Since February 2003, Mr. Solar has been a management
consultant and investor. From June 2002 to February 2003, Mr. Solar acted as a
consultant for Gerber Childrenswear, Inc., a marketer of popular licensed brand
apparel including Gerber, Baby Looney Tunes, Wilson, Converse and Coca-Cola.
From 1996 to June 2002 (when Gerber Childrenswear was acquired by the Kellwood
Company), Mr. Solar was Senior Vice President, Director and Chief Financial
Officer of Gerber Childrenswear.
Meetings of the Board of Directors, its Audit Committee, its Compensation
Committee and its Nominating and Corporate Governance Committee
The Board of Directors held seven meetings during 2004. Each incumbent
director attended at least 75% of the aggregate number of meetings of the Board
of Directors and meetings of committees of the Board of Directors on which he
served.
The Board of Directors' committees are an Audit Committee, a
Compensation Committee, and a Nominating and Corporate Governance Committee.
Audit Committee
The Audit Committee is comprised of Messrs. Solar (chairman), Ganis and
Handel. The Audit Committee met four times in 2004. The Board of Directors has
determined that each member of the Audit Committee is "independent" as defined
in Section 303A.02 of the New York Stock Exchange's Listed Company Manual and
under Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended. The
Board of Directors has also determined that each of Morton E. Handel and Richard
L. Solar is an "audit committee financial expert" as that term is used in Item
401(h) of Regulation S-K.
The Audit Committee's function is (i) to directly appoint, retain,
compensate, evaluate and, where appropriate, terminate the Company's independent
auditors; (ii) to assist the Board's oversight of the integrity of the Company's
financial statements, the Company's compliance with legal and regulatory
requirements, the independent auditors' qualifications and independence, and the
performance of the Company's internal audit function and the independent
auditors; and (iii) to prepare the report required to be included in the
Company's annual proxy statement. Current copies of the Audit Committee charter
and the Company's Complaint Procedure for Accounting and Audit Matters are
available on the Company's Internet website, www.marvel.com and printed copies
are also available on written request sent to:
18
Corporate Secretary, Marvel Enterprises, Inc., 10 East 40th Street, New York,
New York 10016 (after April 30, please use the Company's new address: 417 Fifth
Avenue, New York, New York 10016).
- --------------------------------------------------------------------------------
Audit Committee Report
The Board of Directors has approved and adopted a written charter for
the Audit Committee which is available on the Company's Internet website,
www.marvel.com and printed copies are also available on written request sent to:
Corporate Secretary, Marvel Enterprises, Inc., 10 East 40th Street, New York,
New York 10016 (after April 30, please use the Company's new address: 417 Fifth
Avenue, New York, New York 10016).
The Audit Committee has reviewed and discussed the audited financial
statements of the Company for the fiscal year ended December 31, 2004 with the
Company's management. The Audit Committee has discussed with Ernst & Young LLP,
the Company's independent auditors, the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees.
The Audit Committee has received the written disclosures and the letter
from Ernst & Young LLP required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and the Audit Committee has
discussed the independence of Ernst & Young LLP with that firm.
Based on the Audit Committee's review and discussions noted above, the
Audit Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2004 for filing with the SEC.
Audit Committee
Richard L. Solar Sid Ganis Morton E. Handel
- --------------------------------------------------------------------------------
Compensation Committee
The Compensation Committee is comprised of Messrs. Halpin (chairman),
Handel and Ganis. The Board of Directors has determined that each member of the
Compensation Committee is "independent" as defined in Section 303A.02 of the New
York Stock Exchange's Listed Company Manual. The Compensation Committee met five
times in 2004. The Compensation Committee's function is (i) to discharge the
Board's responsibilities relating to compensation of the Company's executives,
(ii) to produce an annual report on executive compensation for inclusion in the
Company's proxy statement in accordance with applicable rules and regulations,
and (iii) to administer the Company's cash compensation and stock incentive
plans. A current copy of the Compensation Committee charter is available on the
Company's Internet website, www.marvel.com and printed copies are also available
on written request sent to: Corporate Secretary, Marvel Enterprises, Inc., 10
East 40th Street, New York, New York 10016 (after April 30, please use the
Company's new address: 417 Fifth Avenue, New York, New York 10016).
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is comprised of
Messrs. Handel (chairman) and Ganis. The Board of Directors has determined that
each member of the Nominating and Corporate
19
Governance Committee is "independent" as defined in Section 303A.02 of the New
York Stock Exchange's Listed Company Manual. The Nominating and Corporate
Governance Committee met once in 2004. The Nominating and Corporate Governance
Committee's function is (i) to identify individuals qualified to become members
of the Board of Directors; (ii) to recommend to the Board of Directors
individuals to be selected by the Board of Directors as nominees for election as
directors at the next Annual Meeting of Stockholders; and (iii) to develop and
recommend to the Board of Directors a set of corporate governance guidelines
applicable to the Company (the "Corporate Governance Guidelines") and the
modification of such guidelines from time to time. Current copies of: (i) the
Nominating and Corporate Governance Committee charter and (ii) the Corporate
Governance Guidelines are available on the Company's Internet website,
www.marvel.com and printed copies are also available on written request sent to:
Corporate Secretary, Marvel Enterprises, Inc., 10 East 40th Street, New York,
New York 10016 (after April 30, please use the Company's new address: 417 Fifth
Avenue, New York, New York 10016).
As part of the Corporate Governance Guidelines, the Nominating and
Corporate Governance Committee has developed, and the Board of Directors has
approved, Guidelines for Board Membership. These Guidelines for Board
Membership, which are included as Appendix A to the Corporate Governance
Guidelines, assist the Nominating and Corporate Governance Committee in
evaluating qualified candidates for the Board of Directors among individuals
recommended to it or identified through searches conducted by the Committee.
Stockholders of the Company may also make nominations for election as directors,
provided that the nominations are made in accordance with the provisions of the
Guidelines for Board Membership and the By-Laws. See "Stockholder Proposals,"
below. The Nomination and Corporate Governance Committee applies the same
standards in considering candidates submitted by stockholders as it does in
considering all other candidates. The Corporate Governance Guidelines provide
that the Chair of the Board of Directors presides at the regularly scheduled
executive sessions of non-management directors without management if the Chair
is a non-management director, as is the case with Mr. Handel. Mr. Handel
therefore presides at such meetings.
Determination of Director Independence
The Board of Directors has adopted standards for determining whether a
Director is independent. These standards are included in the Guidelines for
Board Membership under the heading "Independent Directors; Standards for
Independence Determinations" and include a definition of director independence
which meets the listing standards of the New York Stock Exchange.
These standards provide that a Director will not qualify as
"independent" unless the Board affirmatively determines that the Director has no
"material relationship" with the Company. A material relationship can arise
either through direct contacts the Director has with the Company or indirectly
(such as if the Director in question is a partner, stockholder or officer of an
organization that has a relationship with the Company). These standards also
provide that:
(1) A person who is an employee, or whose immediate family member is an
executive officer, of the Company is not independent until three years after the
end of such employment relationship.
(2) A person who receives, or whose immediate family member receives,
more than $100,000 per year in direct compensation from the Company, other than
director and committee fees and pension or other deferred compensation for prior
service (provided such compensation in not contingent in any way on continued
service) is not independent until three years after he or she ceases to receive
more than $100,000 per year in such compensation.
(3) A person who is affiliated with or employed by, or whose immediate
family member is affiliated with or employed in a professional capacity by, a
present or former internal or external auditor of
20
the Company is not "independent" until three years after the end of the
affiliation or the employment or auditing relationship.
(4) A person who is employed, or whose immediate family member is
employed, as an executive officer of another company where any of the Company's
present executives serve on that company's compensation committee is not
"independent" until three years after the end of such service or the employment
relationship.
(5) A person who is an executive officer or an employee, or whose
immediate family member is an executive officer, of a company that makes
payments to, or receives payments from the Company for property or services in
an amount which, in any single fiscal year, exceeds the greater of $1 million,
or 2% of such other company's consolidated gross revenues, is not "independent"
until three years after falling below such threshold.
Pursuant to these standards, the Board of Directors has undertaken its
annual review of Director independence. During this review, the Board of
Directors considered transactions and relationships between each Director or any
member of his or her immediate family and the Company and its subsidiaries and
affiliates, including those reported under "Certain Relationships and Related
Transactions" below.
As a result of this review, the Board affirmatively determined that
Messrs. Ganis, Halpin, Handel and Solar are independent because they each meet
these standards.
Code of Ethics
The Company has adopted a code of ethics applicable to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions (the "Code of Ethics"). The
Company has also adopted a Code of Business Conduct and Ethics which is
applicable to all of its employees and directors (the "Code of Business Conduct
and Ethics"). A copy of the Code of Ethics and the Code of Business Conduct and
Ethics is available on the Company's Internet website, www.marvel.com and
printed copies are also available on written request sent to: Corporate
Secretary, Marvel Enterprises, Inc., 10 East 40th Street, New York, New York
10016 (after April 30, please use the Company's new address: 417 Fifth Avenue,
New York, New York 10016). The Company intends to disclose any amendments to, or
waivers from, the Code of Ethics and Code of Business Conduct and Ethics that
are required to be publicly disclosed pursuant to rules of the Securities and
Exchange Commission and the New York Stock Exchange by posting such amendments
or waivers on the Company's website.
Communications with the Board of Directors
Interested parties who have a concern that they would like to make known
to the Non-Management Presiding Director, or to the non-management directors as
a group, may address such concerns directly and confidentially in writing to the
Chairperson of the Board, Marvel Enterprises, Inc., 10 East 40th Street, New
York, New York 10016 (after April 30, please use the Company's new address: 417
Fifth Avenue, New York, New York 10016). Communications to the Board of
Directors as a whole should be addressed to the Board of Directors as a whole
and may otherwise be made in the same manner as communications to the
Non-Management Presiding Director. It is the Company's policy to invite
directors to attend the Annual Meeting of Stockholders, but not to require their
attendance. Two directors attended the 2004 Annual Meeting of Stockholders.
21
Compensation of Directors
Members of the Board of Directors who are officers or employees of the
Company or any of its subsidiaries do not receive compensation for serving in
their capacity as directors.
Non-employee directors, other than the chair of the Board of Directors,
currently receive an annual retainer of $150,000. In addition, all non-employee
directors receive an annual grant of 3,000 restricted shares of Common Stock.
The chairs of (i) the Audit Committee, (ii) the Compensation Committee
and (iii) the Nominating and Corporate Governance Committee each receive an
additional $25,000 per year.
The non-executive vice chair of the Board receives an additional fee of
$75,000 per year (effective January 1, 2005).
The compensation of the chair of the Company's Board of Directors
consists of annual cash payments of $500,000 and one grant per five-year period
of 150,000 shares of restricted stock. The restricted stock is forfeitable, and
is not tradable, upon grant, but it vests (i.e., becomes tradable and
non-forfeitable) on the following schedule, if the recipient continues to serve
as chair on such dates: 50% of the stock vests on the first anniversary of the
grant; 25% vests on the second anniversary; 10% vests on the third anniversary;
10% vests on the fourth anniversary; and 5% vests on the fifth anniversary. The
restricted stock grant is also subject to certain other terms set forth in a
restricted stock agreement between the chair and the Company. In addition, the
chair is reimbursed by the Company for the reasonable costs of maintaining an
office or of tax obligations resulting from such reimbursement.
No additional fees are paid to any directors for attending meetings of
the Board of Directors or any of its committees.
Compensation Committee Interlocks and Insider Participation
During 2004, the members of the Company's Compensation Committee were
Messrs. Halpin, Handel and Ganis. None of those individuals was an officer or
employee of the Company, or of any of its subsidiaries, during 2004 or formerly.
INDEPENDENT AUDITORS
Ernst & Young LLP has audited the consolidated financial statements of
the Company since its formation. Representatives of Ernst & Young LLP are
expected to be present at the Annual Meeting, where they will have the
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
During 2003 and 2004, Ernst & Young LLP provided various audit and other
services to the Company as described below. All of the services described below
were approved by the Audit Committee pursuant to its charter and its policy
regarding pre-approval of audit and non-audit services.
Audit Fees
As of March 16, 2005, the aggregate fees billed by Ernst & Young LLP for
professional services rendered for the audit of the Company's annual financial
statements, the review of financial statements included in the Company's
Quarterly Reports on Form 10-Q and for statutory audits related to the
22
Company's Hong Kong subsidiary, Toy Biz International Limited for the fiscal
years ended December 31, 2003 and 2004, were approximately $502,500 and
$910,500, respectively. Higher Audit fees in 2004 were due primarily to fees
related to testing compliance with Section 404 of the Sarbanes-Oxley Act that as
of March 16, 2005, totaled $400,000. Audit fees for the fiscal year ended
December 31, 2003 include fees for performing the audit of Spider-Man
Merchandising LP, a joint venture between the Company and Sony Pictures
Entertainment Inc., whose audited financial statements for its fiscal year ended
March 31, 2004 were included in the Company's annual financial statements for
the Company's fiscal year ended December 31, 2003.
Audit-Related Fees
As of March 16, 2005, the aggregate fees billed by Ernst & Young LLP for
assurance and related services that were reasonably related to the performance
of the audit or review of the Company's financial statements and are not
reported in "Audit Fees," above, for the fiscal years ended December 31, 2003
and 2004, were approximately $37,000 and $0, respectively. These audit-related
services were in connection with the following: the review of certain
significant license agreements; the review of certain proposed grants of stock
options and restricted stock under the Company's 1998 Stock Incentive Plan; and
the Sarbanes-Oxley Act.
Tax Fees
As of March 16, 2005, the aggregate fees billed by Ernst & Young LLP for
tax compliance, tax advice and tax planning for the fiscal years ended December
31, 2003 and 2004 were approximately $214,000 and $139,500, respectively. These
tax fees were for tax-return review and for miscellaneous consulting.
All Other Fees
For all other products and services performed for the Company for the
fiscal years ended December 31, 2003 and 2004, Ernst & Young LLP has billed an
aggregate of approximately $44,000 and $0, respectively. These other services
were in connection with (i) an acquisition the Company considered in 2003 and
(ii) a possible increase (not effected) in the number of shares covered by the
Company's stock incentive plan.
The Audit Committee has considered whether the services described above
are compatible with maintaining the independent auditors' independence and has
determined that such services are compatible with maintaining the independence
of Ernst & Young LLP.
Pre-Approval of Audit and Non-Audit Services
The Audit Committee is ultimately responsible for pre-approving audit
and non-audit services provided by Ernst & Young LLP including the compensation
to be paid for such services. In carrying out this function, the Audit Committee
has delegated its authority to pre-approve audit and non-audit services to its
Chair who reports any such pre-approvals to the Audit Committee at its next
meeting. The Audit Committee has established a policy regarding pre-approval of
audit and non-audit services (the "Policy"). As a general matter, the Policy is
that all audit and non-audit services are separately pre-approved by the Chair.
In accordance with the Policy, the Audit Committee does not engage Ernst & Young
LLP to perform the specific non-audit services which are precluded by law or
regulation or any services which would impair Ernst & Young LLP's independence.
Under certain circumstances permitted by law, the Policy permits the Audit
Committee or its Chair to waive the pre-approval requirement. During the
23
Company's fiscal year ending December 31, 2004, all audit and non-audit services
provided by Ernst & Young LLP were pre-approved pursuant to the Policy and no
waivers of pre-approval were granted.
EXECUTIVE OFFICERS
The following sets forth the positions held with the Company, age as of
March 14, 2005, and selected biographical information for the executive officers
of the Company other than Messrs. Arad and Perlmutter, whose information is set
forth under "Election of Directors," above.
Alan Fine (54) has served as President, Publishing since September 2004;
Mr. Fine has also been President and Chief Executive Officer of the Company's
toy division since August 2001 and served in that capacity from October 1998 to
April 2001. Mr. Fine served as a director of the Company from June 1997 until
October 1998. From April 2001 until August 2001, Mr. Fine was an independent
consultant. Previously, he served as Chief Operating Officer of the Company, a
position to which he was appointed in September 1996.
Bruno Maglione (42) has served as President, International since
December 2003. From January 1999 to December 2003, Mr. Maglione was Managing
Director and Senior Vice President of Universal Studios Consumer Products
Europe, Middle East and Africa. During his tenure at Universal, Mr. Maglione was
responsible for all of the operations related to the licensing of Universal's
movie, television, animation and video production for both current production
slates and the Studio's library.
David Maisel (42) has been President and Chief Operating Officer of
Marvel Studios since January 2004. From October 2001 to November 2003, Mr.
Maisel headed Corporate Strategy and Business Development for Endeavor Agency, a
Hollywood literary and talent agency. From September 1999 to September 2001, Mr.
Maisel served as Managing Director of Chello Media in Europe.
Timothy Rothwell (46) has been President, Worldwide Consumer Products
Group since September 2003. From October 1996 to August 2003, Mr. Rothwell was
Senior Vice President at Universal Studios Consumer Products Group. During his
tenure at Universal, Rothwell managed the Studio's merchandising, licensing,
marketing, creative and retail development initiatives in all product categories
for North America, South America and Australia.
John Turitzin (49) has been Executive Vice President and General Counsel
of the Company since February 2004. From June 2000 until February 2004, Mr.
Turitzin was a partner in the law firm of Paul, Hastings, Janofsky & Walker LLP.
For more than five years prior to June 2000, Mr. Turitzin was a partner in the
law firm of Battle Fowler LLP, which combined with Paul, Hastings, Janofsky &
Walker in June 2000.
Kenneth P. West (46) has been Executive Vice President and Chief
Financial Officer of the Company since June 2002. He served as the Chief
Operating Officer and Chief Financial Officer of McIntyre Associates, Inc., a
personnel staffing company, from October 2000 to May 2002. From January 1996
until September 2000, Mr. West was the Chief Financial Officer of Colin Service
Systems, Inc., a facility maintenance service company.
24
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
for services rendered in all capacities to the Company and its subsidiaries
earned by or paid to the Company's 2004 Named Executive Officers. Figures are
adjusted for the 3-for-2 split of the Company's stock that was effected in March
2004.
Summary Compensation Table
Long-Term
Annual Compensation Compensation
--------------------------------------- ---------------------------
Other Restricted
Name and Bonus Annual Stock Securities
Principal Salary -------- Compensa Awards Underlying
Position Year ($) ($) (1) tion ($)(2) ($) (3) Options (#)
- ------------ ------ --------- ---------- ----------- ------------ ------------
Allen S. Lipson (4) 2004 550,000 343,750 51,600 (5) -- --
President and Chief Executive 2003 500,000 312,500 51,600 (5) 1,190,000 90,000
Officer
2002 408,846 250,000 51,600 (5) -- 210,000
Avi Arad 2004 375,000 612,500 -- -- 500,000
Chief Creative Officer of the 2003 375,000 250,000 -- -- 537,750
Company and Chairman and Chief
Executive Officer of the
Company's Marvel Studios Division
2002 375,000 187,500 75,000 (6) -- 962,250
Alan Fine 2004 465,000 990,625 (7) -- --
President and Chief Executive 2003 450,000 723,000 (7) 119,000 --
Officer of the Company's Toy &
Publishing Divisions
2002 450,000 669,926 63,195 (7) -- --
David Maisel (8) 2004 485,769 242,885 (9) 2,875,500 375,000 (10)
President and COO of the 2003 -- -- -- -- --
Company's Marvel Studios Division
2002 -- -- -- -- --
Timothy Rothwell (11) 2004 395,000 246,875 (12) -- --
President, Consumer Products Group 2003 122,904 276,375 (12) 123,968 243,750
2002 -- -- -- --
- ---------------
(1) Bonus amounts shown for each year are those accrued for that year, even
if paid after the end of the year.
(2) Includes the value of perquisites and other personal benefits,
securities or property unless the aggregate amount of such compensation is less
than the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the Named Executive Officer.
(3) All restricted stock awards were approved by the Board of Directors and
were granted under the Company's 1998 Stock Incentive Plan. The amounts shown
were calculated by multiplying the closing market price of the Company's common
stock on the date prior to the date of grant by the number of shares granted. At
December 31, 2004, the number and value of the aggregate restricted stock
holdings of the Named Executive Officers were as follows:
25
Number of
Name Shares Held Value ($)
---------- ----------- ---------------------
Allen S. Lipson ............. 60,000 1,190,000
Avi Arad..................... 0 0
Alan Fine.................... 6,000 119,000
David Maisel................. 150,000 2,875,500
Timothy Rothwell ............ 6,250 123,968
The restrictions on the shares held by Messrs. Lipson and Fine lapse
only if certain performance goals of the Company are met. Holders of
restricted shares are entitled to receive any cash dividends paid on
those shares. Stock dividends are restricted in the same manner as the
underlying shares.
(4) Mr. Lipson became President and Chief Executive Officer of the Company
on January 1, 2003. Prior to that date, he served as Executive Vice President,
Business and Legal Affairs of the Company. Mr. Lipson served as the Company's
President and Chief Executive Officer from January 1, 2003 through December 31,
2004 and is currently serving as a part-time special advisor to the Company's
chief executive officer.
(5) Amounts shown for 2004, 2003 and 2002 include, in each year, $37,200 for
an apartment provided by the Company and $14,400 in car allowance.
(6) Car allowance provided to Mr. Arad pursuant to his employment agreement.
(7) Amounts shown for 2002 include $51,195 for an apartment and furniture
provided by the Company and a $12,000 car allowance. In 2003, $37,480 was paid
for an apartment provided by the Company and a $12,000 car allowance was paid.
In 2004, $35,680 was paid for an apartment provided by the Company and a $12,000
car allowance was paid.
(8) Mr. Maisel's employment by the Company began in January, 2004.
(9) Mr. Maisel was paid a car allowance of $13,200 in 2004.
(10) As reported on Mr. Maisel's Form 3 filed with the Securities and
Exchange Commission on January 22, 2004, Mr. Maisel served as a consultant prior
to his employment with the Company and received these options in December, 2003
when his service as a consultant began.
(11) Mr. Rothwell's employment by the Company began in September 2003.
(12) Mr. Rothwell was paid a car allowance of $4,400 in 2003 and a car
allowance of $13,200 in 2004.
Option Grants Table
The following table shows the Company's grants of stock options to the
Named Executive Officers in 2004. Each stock option grant was made under the
Company's 1998 Stock Incentive Plan. No SARs (stock appreciation rights) were
granted by the Company in 2004.
26
Number of Potential Realizable
Shares of Percent of Value at Assumed Annual
Common Stock Total Rates of Stock Price
Underlying Options Exercise Appreciation for Option
Options Granted to Price Terms
Granted in Employees per Expiration ------------------------
Name 2004 in 2004 Share Date 5% 10%
- ------------ -------------- ------------ --------- ---------- ------------------------
Avi Arad 500,000(1) 37.5% $18.79 5/4/2009 $11,988,020 $15,135,345
- ---------------
(1) These options become exercisable in three installments of 166,667,
166,666 and 166,667 on each of May 4, 2005, May 4, 2006, and May 4, 2007,
respectively.
Aggregated Option Exercises and Year-End 2004 Option Value Table
The following table shows the number and value of exercisable and
unexercisable stock options held by the Named Executive Officers at December 31,
2004.
Shares
Acquired Number of Shares of Value of
on Value Common Stock Underlying Unexercised
Exercise Realized Unexercised Options at In-the-Money Options at
Name (#) ($) Year-End (#) (1) Year-End ($)
- -------------- ------------ ----------- ------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
- -------------- ------------ ----------- ----------- ------------- ----------- -------------
Allen S. Lipson 95,700 $1,667,793 492,500 70,000 $6,566,750 $1,123,000
Avi Arad 0 $0 2,650,000 1,000,000 $41,757,805 $8,020,653
Alan Fine 0 $0 547,500 0 $8,979,975 $0
David Maisel 0 $0 93,750 150,000 $680,438 $1,336,500
Timothy Rothwell 0 $0 75,000 300,000 $237,000 $948,000
- ---------------
(1) Represents shares of Common Stock underlying stock options. None of the
Named Executive Officers holds SARs.
Employment Agreements
The Company has entered into employment agreements with each of the
Named Executive Officers whose compensation is described above as well as with
Mr. Perlmutter who became the Company's Chief Executive Officer, effective
January 1, 2005. Those agreements are described below.
(1) Mr. Perlmutter:
Employment Agreement with Mr. Perlmutter. On November 30, 2001, the
Company entered into an employment agreement with Mr. Perlmutter providing for
Mr. Perlmutter's employment as the Company's Vice Chairman of the Board of
Directors. The agreement was amended as of May 1, 2004 to extend the term of
employment through November 30, 2009 and further amended on October 15, 2004 to
provide that Mr. Perlmutter shall also serve, effective January 1, 2005, as the
Company's Chief Executive Officer. Pursuant to the terms of the original
employment agreement, Mr. Perlmutter received, subject to stockholder approval,
options to purchase 3,950,000 (pre-split) shares of Common Stock pursuant to a
nonqualified stock option agreement under the Company's 1998 Stock Incentive
Plan. In January 2002, the Company's stockholders approved the issuance of the
options to Mr. Perlmutter. The options are immediately exercisable, but the
shares of Common Stock issuable on exercise of the options are non-transferable
and subject to repurchase by the Company at the exercise price paid by Mr.
Perlmutter. These restrictions lapse in one-third increments on the fourth,
fifth and sixth anniversaries of the grant date. As
27
Adjusted for the 3-for-2 split of the Company's stock that was effected in March
2004, Mr. Perlmutter received 5,925,000 options pursuant to this grant. As
compensation for his services, Mr. Perlmutter is also entitled to a salary of $1
per year, fringe benefits generally offered to the Company's executive officers,
and the possibility of an annual bonus at the discretion of the Company.
(2) Mr. Lipson:
Employment Agreement with Mr. Lipson. Pursuant to his amended employment
agreement, Mr. Lipson served as the Company's President and Chief Executive
Officer from January 1, 2003 through December 31, 2004 and has agreed to render
his part-time services to the Company, for a two-year term expiring December 31,
2006, as special advisor to the Company's chief executive officer. The agreement
provides that Mr. Lipson shall receive a salary of $200,000 per year for his
services as special advisor. During his tenure as the Company's chief executive
officer, Mr. Lipson's agreement provided for a base salary of no less than
$500,000 and made Mr. Lipson eligible to earn an annual bonus equal to 50% of
his base salary, subject to the attainment of certain performance goals. Mr.
Lipson also received, during his tenure as CEO, a $1,200 monthly automobile
allowance and reimbursement for the rent of a suitable apartment in Manhattan,
monthly parking garage fees and other related utility charges.
(3) Mr. Arad:
Current Employment and License Agreements with Mr. Arad. Pursuant to an
amendment to his employment agreement dated as of May 1, 2004, Mr. Arad has
agreed to render his services to the Company for a term of employment expiring
on December 31, 2007. Under his employment agreement, as amended, Mr. Arad
receives a base salary, subject to discretionary increases, of no less than
$375,000 and an annual bonus in the amount of $612,500, subject to the
attainment of certain performance goals. Mr. Arad is entitled to discretionary
bonuses and participation in the Company's stock incentive plan as determined by
the Board of Directors. Mr. Arad is entitled to participate in employee benefit
plans generally available to the Company's employees. Mr. Arad's employment
agreement provides that, in the event of termination other than for cause, Mr.
Arad is entitled to his salary earned through the date of termination and the
greater of the compensation due for the remaining term of the employment
agreement or twelve months.
With respect to each media project for which Mr. Arad performs
significant services, Mr. Arad and/or Avi Arad Productions LLC is entitled to
retain certain executive producer and/or producer fees customarily payable by
the licensee under any television or motion picture license agreements entered
into by the Company, including up to $350,000 for any one motion picture project
(or, if the executive producer and/or producer fee payable by the licensee is
greater than $700,000, 50% of the entire fee), $10,000 per episode for animated
network television projects, $7,500 per episode for animated syndicated
television projects and $20,000 per episode for live action television projects
of at least one hour. In the event that Mr. Arad enters into agreements with
motion-picture studios containing terms that are reasonably acceptable to the
Company pursuant to which Mr. Arad is compensated by the studio for serving as a
producer, Mr. Arad is entitled to retain 50% of such compensation up to $1
million per motion picture. In the event that the Company independently produces
a motion picture with third-party, non-recourse financing and Mr. Arad continues
to be employed at the time the motion picture is completed, Mr. Arad is entitled
to a fee of $1 million for each such motion picture.
In addition, the Company and Avi Arad & Associates ("Arad Associates"),
of which Mr. Arad is the sole proprietor, are parties to a license agreement
which provides that Arad Associates is entitled to receive royalty payments on
net sales of Marvel-character-based toys and on net sales of
non-Marvel-character-based toys of which Mr. Arad is the inventor of record. The
Company incurred royalty expense
28
due to Arad Associates for toys Mr. Arad invented or designed of approximately
$684,000, $867,000 and $850,000 during the years ended December 31, 2002, 2003
and 2004, respectively.
New Employment Agreement with Mr. Arad
The Company expects to sign an amended and restated employment agreement
with Mr. Arad. Under the proposed agreement, Mr. Arad shall render his services
to the Company for a term of employment expiring on December 31, 2007. As
compensation for his services, Mr. Arad shall receive a base salary of
$1,000,000. Under the agreement, Mr. Arad is also eligible for three annual
performance-based bonuses.
The first bonus, the "Annual Bonus," provides no compensation if the
Company's actual operating income in a year is less than a threshold percentage
of budget. At the threshold percentage, the bonus paid to Mr. Arad would be
$500,000. If the Company's actual operating income for the fiscal year is
between the threshold percentage and budget, the bonus increases until it
reaches $1,000,000 when budget is attained. There is no additional bonus due if
actual operating income exceeds budget.
The second bonus, the "Annual Producer Fee Bonus" provides no
compensation in a given year unless one movie in which Mr. Arad serves as
producer or executive producer opens in that year and goes on to achieve a
specified amount in worldwide box office receipts. If a movie reaches this
threshold, then the Company shall pay Mr. Arad a bonus of $1,250,000 within ten
business days. If multiple movies are released in a single year which go on to
reach this threshold, only one bonus shall be paid to Mr. Arad.
The third bonus, the "Net Sales Bonus" provides no compensation unless
"Net Sales" (see below) in a year are a threshold percentage of budget. If Net
Sales in a year reaches the threshold percentage but is not above budget, then
Mr. Arad shall be entitled to a fraction of a percentage of Net Sales that
increases on a straight-line basis (back to the first dollar of Net Sales) up to
a target fraction of a percentage. If Net Sales are above budget, Mr. Arad shall
be entitled to the target fraction of a percentage up to budget and an
incrementally increased percentage as to any excess over the budgeted amount.
As used in the award, "Net Sales" is generally defined as the net sales
of the Company's licensing division and the net sales of the Company's toy
division. However, toy division net sales are adjusted in the following manner:
(i) sales on toys based on characters the Company does not own are excluded;
(ii) service fees received from the Company's master toy licensee, Toy Biz
Worldwide, Ltd. are excluded; and (iii) sales on toys which the Company produces
(as opposed to those licensed to Toy Biz Worldwide, Ltd.) are assigned an
"imputed royalty" rate which is designed to make immaterial to the calculation
of Mr. Arad's bonus whether the Company produces or licenses its toys. Mr.
Arad's proposed agreement also allows him to provide services to Avi Arad
Productions, Inc. in connection with his services as a producer or executive
producer on feature film and television procuctions.
(4) Mr. Fine:
Current Employment Agreement with Mr. Fine. Pursuant to his employment
agreement, Mr. Fine has agreed to render his exclusive and full-time services to
the Company for a term of employment expiring on August 12, 2005. Under his
employment agreement, Mr. Fine receives a base salary of no less than $450,000,
which for 2004 was $465,000. Mr. Fine is eligible to earn an annual bonus equal
to 50% of his base salary, subject to the attainment of certain performance
goals. Mr. Fine also receives a $1,000 monthly automobile allowance and is
entitled to participate in employee benefit plans generally available to the
Company's employees. The Company reimburses Mr. Fine for the rent of a suitable
apartment in Manhattan, monthly parking garage fees and other related utility
charges up to a maximum of $4,000 per month, until the earlier of the expiration
of his employment or the relocation of his primary residence to the New York
City metropolitan area. Prior to April 2001, Mr. Fine served as the Company's
Chief Operating Officer, a position to which he was appointed in September 1996.
From April 2001 until August 2001, Mr.
29
Fine was an independent consultant, during which time the Company paid Mr. Fine
what had been his monthly salary. The employment agreement provides for the
continued vesting of all options previously granted to Mr. Fine as if no break
in employment service had occurred.
New Employment Agreement with Mr. Fine
The Company expects to sign a new employment agreement with Mr. Fine.
Under the proposed agreement, Mr. Fine shall render his exclusive and full-time
services to the Company. As compensation for his services, Mr. Fine shall
receive a base salary of approximately $465,000. Under the Agreement, Mr. Fine
is also eligible for an annual performance-based bonus.
Mr. Fine is not eligible for any portion of the performance bonus unless
the Company's operating income in a year is a threshold percentage of the
operating income budget.
Once the threshold percentage is met, Mr. Fine has a target bonus of
$750,000 that is payable if the Company as a whole, its toy division and its
Publishing division all meet their budget. The target bonus is allocated among
these three categories. For each of these categories, if operating income for
that category in a year reaches a threshold percentage but is not above budget,
then Mr. Fine shall be entitled to a percentage of the allocated amount for that
category. This percentage increases on a straight-line basis up to the allocated
amount when budget is attained. In addition to the amounts under the allocated
portion of the bonus, Mr. Fine is also entitled to a percentage of any operating
income over budget in each of the three categories.
(5) Mr. Maisel:
Employment Agreement with Mr. Maisel. Pursuant to his employment
agreement, Mr. Maisel has agreed to render his exclusive and full-time services
to the Company for a term of employment expiring on January 12, 2009. Under his
employment agreement, Mr. Maisel receives a base salary of no less than
$500,000. Mr. Maisel is eligible to earn an annual cash bonus equal to 50% of
his base salary, subject to the attainment of certain performance goals. Mr.
Maisel also is entitled to an annual non-cash bonus (payable under the Company's
1998 Stock Incentive Plan and consisting of options, restricted stock or other
non-cash compensation) having a value at the time of grant equal to three times
Mr. Maisel's then-applicable salary and cash bonus. Mr. Maisel receives a $1,100
monthly automobile allowance and is entitled to participate in employee benefit
plans generally available to the Company's employees.
(6) Mr. Rothwell:
Employment Agreement with Mr. Rothwell. Pursuant to his employment
agreement, Mr. Rothwell has agreed to render his exclusive and full-time
services to the Company for a term of employment expiring on September 3, 2005.
Under his employment agreement, Mr. Rothwell receives a base salary of no less
than $385,000, which for 2004 was 395,000. Mr. Rothwell is eligible to earn an
annual bonus equal to 50% of his base salary, subject to the attainment of
certain performance goals. Mr. Rothwell also receives a $1,100 monthly
automobile allowance and is entitled to participate in employee benefit plans
generally available to the Company's employees.
(7) Provisions Contained in Named Executive Officers' Employment Agreements:
Termination Provisions. The employment agreements of the Named Executive
Officers provide that, in the event of termination, the employee is entitled to
certain payments and benefits depending on the circumstances of the termination.
Upon a change in control of the Company, the employee is entitled to a severance
payment equal to two times the sum of his then-current base salary and the
average of the two
30
most recent annual bonuses paid, and all of the employee's unvested stock
options vest immediately. If any payments to the employee under his employment
agreement ("Parachute Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code, then the employee will be entitled to
receive an additional payment from the Company (a "Gross-Up Payment") in an
amount such that the employee retains, after the payment of all taxes, an amount
of the Gross-Up Payment equal to the excise tax imposed on the Parachute
Payments.
Confidential Information. The employment agreements of the executive
officers prohibit disclosure of proprietary and confidential information
regarding the Company and its business to anyone outside the Company both during
and subsequent to employment and otherwise provide that all inventions made by
the employees during their employment belong to the Company.
31
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REPORT ON EXECUTIVE COMPENSATION
Our Compensation Committee acts on behalf of the Board of Directors and
stockholders to administer the compensation program for executives. Our
Committee operates under a charter adopted by the Board of Directors, which
delegates authority to the Committee and provides for its governance. Each
member of the Committee serving now and throughout 2004 was independent under
New York Stock Exchange and the Company's standards of independence. We met five
times in 2004, in addition to actions taken by unanimous written consent.
Fundamental Objective
The fundamental objective of the Company's executive compensation
policies is to compensate executive officers in a way which advances the
interests of stockholders by allowing the Company to attract, motivate and
retain executives of the highest caliber and by aligning their interests with
those of the stockholders.
Continuing Evaluation Process
To meet this fundamental objective, we engage in an ongoing process of
reexamining executive compensation in light of current market conditions, the
performance of the Company and its individual executives.
Evaluation of Compensation in 2004
As part of this process, in 2004, our Committee engaged an independent
compensation consulting firm to examine the Company's compensation practices and
provide a report regarding the appropriate compensation guidelines for all of
the Company's employees, including executive officers. The report provided a
comparative analysis of each of the three components which make up the Company's
compensation: annual base salary, annual bonus compensation and long-term
incentive compensation.
Compensation Decisions in 2004
The compensation paid to the Company's executive officers was designed
to be competitive with the compensation paid to executive officers of similarly
situated public companies. In making executive compensation decisions, our
Committee in general considered the level of responsibility, knowledge and
experience required and results achieved and undertook to structure compensation
packages so as to attract, motivate and retain executives of the highest caliber
who will contribute to the long-term performance and success of the Company. We
believe that the compensation paid to its executive officers in 2004 was
commensurate with prevailing compensation levels for similar positions and
performance in the entertainment and licensing industries and served the
Company's goal of retaining its experienced executive officers. In large
measure, 2004 compensation to Named Executive Officers that exceeded median
levels resulted from bonuses tied to Company performance, which were paid out at
above target levels due to strong performance.
The Company's compensation to its Named Executive Officers during 2004
was comprised of three elements: annual base salary, annual cash bonus and
long-term incentive compensation.
Annual Base Salary. At the time when each executive officer is hired by
the Company, our Committee determines the officer's initial base salary and that
salary is set forth in an employment agreement. In many cases, the initial
salary results from our negotiations with the Named Executive
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32
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Officer. Each Named Executive Officer's employment agreement provides that his
base salary may be increased, but not decreased, from year to year. The amount
of any year-to-year increase is determined by our Committee.
Four Named Executive Officers were employed in both 2003 and 2004. Mr.
Lipson, the Company's CEO for both of those years, received a 10% increase in
base salary from 2003 to 2004. Mr. Fine received a 3.3% increase in base salary
from 2003 to 2004. Mr. Rothwell received a 2.6% increase in base salary from
2003 to 2004. Mr. Arad did not receive an increase in base salary from 2003 to
2004.
Our determinations with respect to year-to-year salary increases from
2003 to 2004 were made on a case-by-case basis. We considered factors including
the performance of the Named Executive Officer's and the Company, our assessment
of the appropriate proportion of salary as part of total compensation, and
information regarding competitive levels of total direct compensation and salary
provided to us in the report of our independent compensation consultants. We set
these 2004 salaries in a range in line with prevailing salaries for similar
positions in the entertainment and licensing industries.
Annual Cash Bonus. Each Named Executive Officer's employment agreement
sets forth a target bonus amount. In the cases of Messrs. Lipson, Maisel and
Rothwell, the target bonus for 2004 was 50% of the officer's salary received
during the year. In the case of Mr. Arad, the target bonus was $612,500. Mr.
Arad's target bonus was increased from $250,000 to $612,500 pursuant to an
amendment to his employment agreement that, among other items, extended the term
of his employment agreement. Actual bonuses for all executive officers with
respect to 2004, except for Mr. Fine's and Mr. Arad's, were determined as a
percentage of targeted bonus amount, the percentage being tied to the
relationship between the Company's actual 2004 operating income and the
Company's budgeted 2004 operating income. If actual 2004 operating income had
been less than 90% of the budgeted amount, no bonuses would have been granted.
If actual 2004 operating income had been 90% of the budgeted amount, bonuses
would have equaled 50% of the target bonus amount. If actual 2004 operating
income had been 100% of the budgeted amount, bonuses would have equaled 100% of
the target bonus amount (with gradations in between for results between 90% and
100% of budget). Under a formula chosen by our Committee, the amount of target
bonus payable increased with the amount of actual 2004 operating income
(compared to the budgeted amount), up to a maximum of 125% of target bonus,
which was payable in the event that actual 2004 operating income was more than
110% of the budgeted amount. Because actual operating income performance in 2004
was more than 110% of the budgeted amount, bonuses were paid at 125% of target.
Mr. Arad's bonus followed the same formula, however, his bonus was not subject
to increase in the event that operating income was more than the budgeted
amount. Accordingly, Mr. Arad's bonus was equal to the target amount ($612,500).
Mr. Fine's bonus in 2004 was $990,625. Under the leadership of Mr. Fine, the net
revenue of the Company's Toy division in 2004 increased 42% over 2003 on strong
sales of toys based on the Spider-Man 2 movie.
Long-Term Incentive Compensation. Long-term incentive compensation
granted by the Company with respect to 2004 consisted of restricted stock and
one option award. Of the Named Executive Officers, only Messrs. Maisel and
Rothwell and Arad received long-term incentive compensation with respect to
2004. Mr. Maisel's grant consisted of 28,385 shares of restricted stock. The
number of shares granted to Mr. Maisel was determined pursuant to the formula
contained in his employment agreement. Mr. Rothwell's grant consisted of 29,268
shares of restricted stock. The number of shares granted to Mr. Rothwell was
determined based on the performance of the individual and the Company and
information regarding the competitive levels of total compensation and equity
compensation contained in the 2004 compensation report of our independent
compensation consultants. Mr. Maisel's and Mr. Rothwell's restricted stock
grants with respect to 2004 performance were made on January 4, 2005. As
described in further detain in the Options Grant Table, Mr. Arad received a
grant of
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33
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500,000 options based on the performance of the individual and the Company and
on the recommendation of the independent compensation consulting firm referred
to above. Messrs. Lipson and Fine received no long-term incentive compensation
with respect to 2004. As reported on Form 4s filed with the Securities and
Exchange Commission on January 6, 2005, each executive officer serving in 2004
other than the Named Executive Officers, received a grant of restricted stock,
based on our assessment of the performance of the individual and the Company,
competitive practice and our desire to use such grants to focus the executives
on sustaining long-term stock price performance and otherwise to align their
interests with those of stockholders.
Other Benefits. The Company provides benefits to executives that are not
part of what we consider direct compensation. One of the more significant
benefits we provide to executives is severance protection, including enhanced
protections following a change in control. We also provide certain executives
with a car allowance, and in some cases reimburse executives for the cost of
maintaining an apartment and garaging costs for the automobile. We are
reexamining these policies and intend in 2005 to begin phasing out certain of
these perquisites.
CEO Compensation
Mr. Lipson's compensation with respect to 2004 consisted of $550,000 in base
salary, $343,750 in bonus (125% of the target amount of half his base salary)
and $14,400 in automobile allowance (as provided in Mr. Lipson's employment
agreement). We increased Mr. Lipson's salary by 10% in 2004, primarily based on
our assessment of the Company's positive performance in 2003 under his
leadership. The main performance-related component of Mr. Lipson's compensation,
as described above, was his bonus, the terms of which, including the threshold,
target and maximum payout levels and the corresponding levels of operating
income that would trigger the award, are described above. Mr. Lipson was not
granted any stock options or other equity grants (such as restricted stock) in,
or with respect to, 2004. He did, however, exercise stock options in 2004 that
he had been granted in earlier years, as described in the "Aggregated Option
Exercises and Year-End 2004 Option Value Table," above. On December 31, 2004,
Mr. Lipson stepped down as President and Chief Executive Officer of the Company
and is currently serving as a part-time special advisor to the Company's chief
executive officer.
Availability of Federal Income Tax Deduction
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public corporations for compensation over $1 million paid for any
fiscal year to the corporation's chief executive officer and the four other most
highly compensated executive officers serving on the last day of the fiscal
year. The statute, however, exempts qualifying performance-based compensation
from the deduction limit if certain requirements are met.
Our Committee designs certain components of executive compensation to
ensure full deductibility. To further this goal, we have approved, subject to
stockholder approval, the 2005 Cash Incentive Compensation Plan described above
in this proxy statement. The Cash Incentive Plan is designed, in part, to allow
the Company to pay short-term and long-term bonuses that will be fully tax
deductible without limitation under Section 162(m). Likewise, we have approved,
subject to stockholder approval, the 2005 Stock Incentive Plan to authorize
equity awards that can be qualified for full deductibility under Section 162(m).
These Plans also will give our Committee flexibility in designing incentive
awards, streamline the Company's bonus and long-term incentive award programs
for its most highly compensated employees and enable us to more closely relate
executive compensation to the Company's performance. Both of those Plans also
would permit awards to be granted that do not qualify as fully deductible awards
under 162(m).
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34
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While our Committee is mindful of the limitations imposed by Section
162(m), it believes that stockholder interests are best served by not
restricting our discretion and flexibility in crafting compensation programs,
even though such programs may result in non-deductible compensation expenses.
Accordingly, we have from time to time approved elements of compensation for
certain officers that are not fully deductible, and reserve the right to do so
in the future in appropriate circumstances.
Compensation Committee
James F. Halpin Morton E. Handel Sid Ganis
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35
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return on shares of Common Stock with that of the Standard & Poor's Midcap 400
Index (the "S&P Midcap 400 Index") and the Media index published by CoreData,
formerly known as MGFS and as Media General Financial Services (the "Media
Index").
The comparison assumes that, immediately after the close of business on
December 31, 1999, $100 was invested in shares of Common Stock and in the stocks
included in the S&P Midcap 400 Index and the Media Index, and that all dividends
were reinvested. These indexes, which reflect formulas for dividend reinvestment
and weighting of individual stocks, do not necessarily reflect returns that
could be achieved by individual investors.
COMPARATIVE CUMULATIVE TOTAL RETURN
AMONG MARVEL ENTERPRISES, INC.,
S&P MIDCAP 400 INDEX AND COREDATA MEDIA INDEX
[GRAPHIC OMITTED
Value of $100
invested over period presented:
Marvel Enterprises, Inc. Common Stock $ 558.27
S&P Midcap 400 Index $ 157.73
CoreData Media Index $ 63.66
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Common Stock on March 15, 2005 (based on 105,307,005
shares of Common Stock outstanding on that date), by (i) each person known by
the Company to be the beneficial owner of 5% or more of the outstanding Common
Stock (based, in part, upon copies of all Schedules 13D and 13G filed with the
SEC); (ii) each of the Company's directors; (iii) each of the Named Executive
Officers (as defined in "Executive Compensation," above); and (iv) all of the
Company's executive officers and directors as a group.
Shares
Five Percent Stockholders, Directors Beneficially Percentage
and Executive Officers Owned Owned
---------------------------------- ------- -------
Bank of America Corporation (1)
100 N. Tryon Street
Charlotte, NC 28255 ............................. 5,638,805 5.35%
Janus Capital Management LLC (2)
100 Filmore Street
2nd Floor
Denver, CO 80206 ................................ 9,200,265 8.74%
Avi Arad (3)..................................... 4,038,697 3.74%
F. Peter Cuneo (4)............................... 1,698,000 1.60%
Alan Fine (5).................................... 553,500 *
Sid Ganis (6) ................................... 75,000 *
James F. Halpin (7).............................. 134,250 *
Morton E. Handel (8)............................. 167,000 *
Allen S. Lipson (9) ............................. 597,500 *
David Maisel (10) ............................... 253,385 *
Isaac Perlmutter (11)............................ 29,039,413 25.99%
Timothy Rothwell (12)............................ 129,268 *
Richard L. Solar (13)............................ 98,500 *
All current executive officers and directors as a
group (13 persons) .......................... 36,457,505 31.19%
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* Less than 1%.
(1) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 11, 2005. As reported in that Schedule: (i) Bank
of America Company has shared voting power over 5,638,805 shares and
shared dispositive power over 1,745,129 shares of Common Stock; (ii) NB
Holdings Corporation has shared voting power over 4,412,677 shares and
shared dispositive power over 503,411 shares of Common Stock; (iii) Bank
of America, NA has sole voting power over 464,813 shares, shared voting
power over 3,944,866 shares and sole dispositive power over 500,413
shares of Common Stock; (iv) Nationsbanc Montgomery Holdings Corporation
has shared voting power over 2,998 shares and shared dispositive power
over 2,998 shares of Common Stock;
37
(v) Fleet National Bank has sole voting power 104,638 shares, shared
voting power over 1,121,490 shares, sole dispositive power over 106,778
shares and shared dispositive power over 1,134940 shares of Common
Stock; (vi) Columbia Management Group, Inc. has shared voting power over
1,121,490 shares and shared dispositive power over 1,127,120 shares of
Common Stock; (vii) Columbia Management Advisors, Inc. has sole voting
power over 1,115,200 shares and sole dispositive power over 1,098,870
shares of Common Stock; (viii) Columbia Trust Company has sole voting
power over 6,290 shares and sole dispositive power over 6,290 shares of
Common Stock; and (ix) Banc of America Securities LLC has sole voting
power over 2,998 shares and sole dispositive power over 2,998 shares of
Common Stock.
(2) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 14, 2005. As reported in that Schedule, Janus
Capital Management LLC holdings are aggregated, for purposes of the
Schedule, with the holdings of Bay Isle Financial LLC and Enhanced
Investment Technologies LLC and they have sole voting and dispositive
power over 9,200,265 shares of Common Stock.
(3) Figures include 2,816,667 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable or are scheduled to become exercisable within 60
days after March 21, 2005.
(4) Figures include 1,140,000 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(5) Figures include 547,500 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(6) Figures include 72,000 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(7) Figures include 112,500 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(8) Figures include 37,500 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(9) Figures include 537,500 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable or are scheduled to become exercisable within 60
days after March 21, 2005.
(10) Figures include 75,000 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(11) Mr. Perlmutter may be deemed to possess the sole power to vote and
dispose of an aggregate amount of 29,039,413 shares of Common Stock. Mr.
Perlmutter owns directly (i) 3,036,026 currently outstanding shares of
Common Stock and (ii) options, granted pursuant to the 1998 Stock
Incentive Plan, that are immediately exercisable for 6,425,000 shares of
Common Stock.
The sole stockholder of Zib Inc., a Delaware corporation, is Isaac
Perlmutter Trust 01/28/1993, a Florida revocable trust (the "Perlmutter
Trust"). Mr. Perlmutter is a trustee and the sole beneficiary of the
Perlmutter Trust, and is also president of Zib, Inc. Mr. Perlmutter is
the sole stockholder and president of Object Trading Corp., a Delaware
corporation. Mr. Perlmutter may be deemed to
38
possess the power to vote and dispose of the shares of Common Stock
directly held by Zib Inc., Object Trading Corp., and the Perlmutter
Trust.
As the sole stockholder of Object Trading Corp., Mr. Perlmutter
beneficially owns 14,622,680 shares of Common Stock directly owned by
this entity. Finally, because the Perlmutter Trust is the sole
stockholder of Zib, Inc., which directly owns 3,694,645 shares of Common
Stock, and because Mr. Perlmutter is a trustee and the sole beneficiary
of the Perlmutter Trust, which directly owns 1,261,062 shares of Common
Stock, he may be deemed to beneficially own the combined amount of
4,955,707 shares of Common Stock directly owned by these two entities.
Object Trading Corp. may be deemed to possess the power to vote and
dispose of 14,622,680 shares of Common Stock. The Perlmutter Trust may
be deemed to possess the power to vote and dispose of an aggregate
amount of 4,955,707 shares of Common Stock. Zib, Inc. may be deemed to
possess the power to vote and dispose of 3,694,645 shares of Common
Stock.
(12) Figures include 93,750 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable.
(13) Figures include 75,000 shares of Common Stock in respect of stock
options granted pursuant to the 1998 Stock Incentive Plan that are
immediately exercisable. The number of shares of Common Stock shown
includes (i) 1,500 shares of Common Stock held by Mr. Solar's wife, as
custodian for her daughter, (ii) 2,500 shares of Common Stock owned by
his son, and (iii) 2,500 shares of Common Stock owned by his wife.
39
The following table sets forth the securities authorized for issuance
under the Company's equity compensation plan.
Equity Compensation Plan Information as of December 31, 2004
Number of Weighted Number of
securities to average securities remaining
be issued upon exercise price available for future
exercise of of outstanding issuance under
outstanding options, warrants equity compensation
options, and rights plans
warrants and (excluding securities
rights reflected in column
(a))
Plan Category (a) (b) (c)
Equity compensation plans
approved by security holders 15,150,246 $6.55 2,819,439
Equity compensation plans not ___ ___ ___
approved by security holders
Total 15,150,246 $6.55 2,819,438
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Employment of Ari Arad
Ari Arad, the son of Avi Arad (a director of the Company and a Named
Executive Officer), is employed by the Company on a full-time basis as Senior
Vice President, Marvel Studios. In 2004, Mr. Ari Arad received a base salary of
$125,000 and a car allowance of $6,000.
Registration Rights Agreements
The Company is a party to registration rights agreements (one dated as
of October 1, 1998, and the other dated as of December 8, 1998) with Mr. Arad,
Mr. Perlmutter, certain affiliates of Mr. Perlmutter, certain affiliates of an
individual who was a director of the Company during 2002 but is no longer a
director of the Company, and certain other parties (the "Registration Rights
Agreements"). Under the terms of each of the Registration Rights Agreements, the
Company agreed to file a shelf registration statement under the Securities Act
of 1933, as amended, registering the resale of all shares of Common Stock and 8%
Preferred Stock issued to the stockholder parties thereto pursuant to the plan
of reorganization pursuant to which the Company acquired Marvel Entertainment
Group, Inc. on October 1, 1998, all shares of Common Stock issuable upon
conversion of those shares of 8% Preferred Stock, certain convertible debt
securities that the Company was entitled to exchange for the 8% Preferred Stock
and the Common Stock issuable upon conversion thereof and all shares of Common
Stock otherwise owned by the stockholder parties to the respective Registration
Rights Agreement as of the date thereof. The Registration Rights Agreements also
give the stockholder parties thereto piggyback registration rights with respect
to underwritten public offerings by the Company of its equity securities. Mr.
Perlmutter also received registration rights in 2001 with respect to stock
underlying certain warrants; see "Guaranty, Warrant Agreement, Registration
Rights Agreement, Notes Purchase Agreement," below in this section.
40
Tangible Media Advertising Services
Tangible Media, a corporation which is wholly owned by Mr. Perlmutter,
acts as the Company's media consultant in placing certain of the Company's
advertising and receives certain fees and commissions based on the cost of the
placement of such advertising. In conjunction with the actual placement of the
advertising, Tangible Media also provides the Company with the planned research,
advertising plans, competitive spending analysis and services related to the
delivery of commercials and instructions to broadcast outlets at no additional
cost to the Company. Tangible Media received payments of fees and commissions
from the Company totaling approximately $102,000, $157,000 and $330,000 in 2002,
2003 and 2004, respectively. The Company believes that the services provided by
Tangible Media were provided on terms and for fees that were at least as
favorable as could have been obtained by the Company in a transaction with an
unrelated company.
Employee, Office Space and Overhead Cost Sharing Arrangements
The Company and Tangible Media share certain space at the Company's
principal executive offices and related overhead expenses. Since 1994, Tangible
Media and the Company have been parties to an employee, office space and
overhead cost sharing agreement (the "Cost Sharing Agreement"). Under the Cost
Sharing Agreement, any party thereto may through its employees provide services
to another party, upon request, whereupon the party receiving services shall be
obligated to reimburse the providing party for the cost of such employees'
salaries and benefits accrued for the time devoted by such employees to
providing services. Under the Cost Sharing Agreement, Tangible Media is
obligated to reimburse the Company for rent paid under the sublease for the
space, any related overhead expenses comprised of commercial rent tax, repair
and maintenance costs and telephone and facsimile services, in proportion to its
percentage occupancy. The Cost Sharing Agreement is coterminous with the term of
the Company's sublease for its executive offices. Under this Agreement, Tangible
Media paid approximately $95,000, $96,000 and $93,000 to the Company in 2002,
2003 and 2004, respectively.
Guaranty, Warrant Agreement, Registration Rights Agreement, Notes
Purchase Agreement
In connection with the Company's establishment of an $80 million senior
credit facility with HSBC (the "Credit Facility") on November 30, 2001, Mr.
Perlmutter agreed to guaranty the payment of the Company's obligations under the
Credit Facility in an amount equal to 25% of all principal obligations relating
to the Credit Facility plus an amount, not to exceed $10 million, equal to the
difference between (i) the amount of cash in a reserve account required to be
maintained by the Company as security for the Credit Facility, and (ii) the
actual amount on deposit in such cash reserve account at the end of each fiscal
quarter; provided that the aggregate amount guarantied by Mr. Perlmutter will
not exceed $30 million (the "Credit Guaranty").
In consideration of the Credit Guaranty and Mr. Perlmutter's guaranty up
to a maximum of $4,365,000 of the Company's obligations under its lease for its
executive offices (the "Office Guaranty"), the Company and Mr. Perlmutter
entered into (i) a warrant agreement (the "Warrant Agreement"), pursuant to
which the Company granted Mr. Perlmutter warrants to purchase up to a maximum of
(pre-split) five million shares of Common Stock on or before November 30, 2006,
at an initial exercise price per share equal to $3.11 (the "Warrants"), subject
to stockholder approval, and (ii) a registration rights agreement, pursuant to
which the Company gave Mr. Perlmutter certain registration rights with respect
to the shares of Common Stock issuable to him under the Warrant Agreement. The
Company also agreed to purchase a total of approximately $43 million in
principal amount of the Company's Senior Notes (the "Notes") at an average price
of 53% of the face amount of the Notes held by Mr. Perlmutter pursuant to a
Notes Purchase Agreement dated as of November 30, 2001. Mr. Perlmutter had
purchased those Notes with personal funds. In December 2001, the Company
purchased the Notes from Mr. Perlmutter and in January 2002, the
41
Company's stockholders approved the issuance of the Warrants to Mr. Perlmutter.
Pursuant to the terms of the Warrant Agreement, the Warrants were ultimately
exercisable with respect to 4,603,309 shares of Common Stock. All of the
Warrants were exercised during 2003.
ADDITIONAL INFORMATION
The Company will make available a copy of its Annual Report on Form 10-K
for the fiscal year ended December 31, 2004, filed with the Securities and
Exchange Commission on March 9, 2005, without charge, upon written request to
the Secretary, Marvel Enterprises, Inc., 10 East 40th Street, New York, New York
10016 (after April 30, please use the Company's new address: 417 Fifth Avenue,
New York, New York 10016). Each such request must set forth a good-faith
representation that, as of the Record Date, March 15, 2005, the person making
the request was a beneficial owner of shares of Common Stock entitled to vote at
the Annual Meeting.
In order to ensure timely delivery of documents prior to the Annual
Meeting, any request should be received by the Company promptly.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities ("10%
Stockholders"), to file reports of ownership and changes in ownership on Forms
3, 4 and 5 with the SEC and the New York Stock Exchange. Officers, directors and
10% Stockholders are required to furnish the Company with copies of all Forms 3,
4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and written representations from certain reporting persons that they
were not required to file such forms, the Company believes that, except as noted
below, all of its officers, directors and 10% Stockholders complied with all
filing requirements applicable to them with respect to transactions during the
fiscal year ended December 31, 2004.
The following information notes all late filings of Forms 3, 4 and 5 by
persons who were directors, officers or 10% Stockholders of the Company in 2004,
late filings in 2003 not previously reported and any late filings in 2005 to
date. F. Peter Cuneo filed one late report on Form 4, such report being filed
solely to report a single transaction in which he was granted stock options
pursuant to the Company's 1998 Stock Incentive Plan. Sid Ganis reported two
transactions on a Form 4 that was filed one day late.
STOCKHOLDER PROPOSALS
The eligibility of stockholders to submit proposals, the proper subjects
of stockholder proposals and other issues governing stockholder proposals are
regulated by the rules adopted under Section 14 of the Exchange Act. Stockholder
proposals submitted pursuant to Rule 14a-8 under the Exchange Act for inclusion
in the Company's proxy materials for the 2006 Annual Meeting of Stockholders
must be received by the Company at its principal executive offices at 417 Fifth
Avenue, New York, New York 10016, no later than November 25, 2005.
Under the By-Laws, and as permitted by the rules of the SEC, certain
procedures are provided which a stockholder must follow to nominate people for
election as directors or to introduce an item of business at the Annual Meeting
of Stockholders. These procedures provide that, in the case of a meeting
42
such as this Annual Meeting, notice for nominations or stockholder proposals
must be received by the Company not later than the close of business on the 60th
day prior to the first anniversary of the preceding year's annual meeting. The
2004 annual meeting of stockholders was held on May 5, 2004. The persons
designated as proxies by the Company in connection with the 2005 Annual Meeting
of Stockholders will have discretionary voting authority with respect to any
proposal of which the Company did not receive timely notice.
The chairman of the meeting may refuse to allow the transaction of any
business not presented beforehand, or to acknowledge the nomination of any
person not made in compliance with the foregoing procedures.
INCORPORATION OF DOCUMENTS BY REFERENCE
This proxy statement incorporates by reference the financial statements,
supplementary financial information, management's discussion and analysis of
financial condition and results of operations and quantitative and qualitative
disclosures about market risk included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 2004, as filed with the Commission
on March 9, 2005.
Any statement contained in a document incorporated by reference in this
proxy statement will be deemed to be modified or superseded for purposes of this
proxy statement to the extent that a statement contained in this proxy statement
or in any other subsequently filed document which is also incorporated by
reference in this proxy statement modifies or supersedes such statement. Any
statements so modified or superseded will not be deemed, except as modified or
superseded, to constitute a part of this proxy statement.
OTHER BUSINESS
The Board of Directors is not aware of any matters other than those set
forth in this proxy statement that will be presented for action at the Annual
Meeting. If any matters properly come before the meeting, the persons named as
proxies intend to vote the shares of Common Stock they represent in accordance
with their best judgment.
43
APPENDIX A
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MARVEL ENTERPRISES, INC.
2005 STOCK INCENTIVE PLAN
MARVEL ENTERPRISES, INC.
2005 STOCK INCENTIVE PLAN
Page
----
1. PURPOSE................................................................1
2. DEFINITIONS............................................................1
3. ADMINISTRATION.........................................................3
4. STOCK SUBJECT TO PLAN..................................................4
5. ELIGIBILITY; PER-PERSON AWARD LIMITATIONS..............................4
6. SPECIFIC TERMS OF AWARDS...............................................5
7. PERFORMANCE AWARDS.....................................................9
8. CERTAIN PROVISIONS APPLICABLE TO AWARDS...............................10
9. CHANGE IN CONTROL.....................................................11
10. GENERAL PROVISIONS....................................................12
-i-
MARVEL ENTERPRISES, INC.
2005 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this 2005 Stock Incentive Plan (the "Plan")
is to aid Marvel Enterprises, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), in attracting, retaining, motivating and
rewarding officers, employees and directors of the Company and its subsidiaries
and consultants and advisors to the Company or its subsidiaries
("Participants"), to provide for equitable and competitive compensation
opportunities, to recognize individual contributions and reward achievement of
Company goals, and promote the creation of long-term value for stockholders by
closely aligning the interests of Participants with those of stockholders. The
Plan authorizes stock-based incentives for Participants.
2. Definitions. In addition to the terms defined in Section 1 above and
elsewhere in the Plan, the following capitalized terms used in the Plan have the
respective meanings set forth in this Section:
(a) "Annual Limit" shall have the meaning specified in Section 5(b).
(b) "Award" means any Option, SAR, Restricted Stock, Deferred Stock,
Stock granted as a bonus or in lieu of another award, Dividend Equivalent, Other
Stock-Based Award, or Performance Award, together with any related right or
interest, granted to a Participant under the Plan.
(c) "Beneficiary" means the legal representatives of the Participant's
estate entitled by will or the laws of descent and distribution to receive the
benefits under a Participant's Award upon a Participant's death, provided that,
if and to the extent authorized by the Committee, a Participant may be permitted
to designate a Beneficiary, in which case the "Beneficiary" instead will be the
person, persons, trust or trusts (if any are then surviving) which have been
designated by the Participant in his or her most recent written and duly filed
beneficiary designation to receive the benefits specified under the
Participant's Award upon such Participant's death. Unless otherwise determined
by the Committee, any designation of a Beneficiary other than a Participant's
spouse shall be subject to the written consent of such spouse.
(d) "Board" means the Company's Board of Directors.
(e) "Cause" means "cause" as defined in an employment agreement between
the Company and the Participant in effect at the time of Termination of
Employment. If, however, there is no such employment agreement or no definition
of "cause" therein, Cause means an individual's (i) intentional failure to
perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection with the
performance of duties to the Company or any of its Subsidiaries thereof which
transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit, (iv) knowing or
grossly negligent misconduct which results in the Company being required to
prepare an accounting restatement due to the material noncompliance of the
Company with any financial reporting requirement under the securities laws, (v)
willful violation of any law, rule or regulation in connection with the
performance of duties (other than traffic violations or similar offenses), or
(v) the commission of an act of fraud or intentional misappropriation or
conversion of assets or opportunities of the Company or any Subsidiary;
provided, however, that the Committee may vary the definition of "Cause" in any
agreement or document relating to an Award.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation thereunder shall include
any successor provisions and regulations,
including any applicable guidance or pronouncement of the Department of the
Treasury and Internal Revenue Service.
(g) "Committee" means the Compensation Committee of the Board, the
composition and governance of which is established in the Committee's Charter as
approved from time to time by the Board and subject to Section 303A.05 of the
Listed Company Manual of the New York Stock Exchange, and other corporate
governance documents of the Company. No action of the Committee shall be void or
deemed to be without authority due to the failure of any member, at the time the
action was taken, to meet any qualification standard set forth in the Committee
Charter or this Plan. The full Board may perform any function of the Committee
hereunder, except to the extent limited under Section 303A.05 of the Listed
Company Manual or by law, in which case the term "Committee" shall refer to the
Board.
(h) "Covered Employee" means an Eligible Person who is a Covered
Employee as specified in Section 10(j).
(i) "Deferred Stock" means a right, granted under this Plan, to receive
Stock or other Awards or a combination thereof at the end of a specified
deferral period.
(j) "Dividend Equivalent" means a right, granted under this Plan, to
receive cash, Stock, other Awards or other property equal in value to all or a
specified portion of the dividends paid with respect to a specified number of
shares of Stock.
(k) "Effective Date" means the effective date specified in Section
10(q).
(l) "Eligible Person" has the meaning specified in Section 5(a).
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule (including a
proposed rule) thereunder shall include any successor provisions and rules.
(n) "Fair Market Value" means the fair market value of Stock, Awards or
other property as determined in good faith by the Committee or under procedures
established by the Committee. Unless otherwise determined by the Committee, the
Fair Market Value of Stock shall be the closing sales price per share of Stock
reported on a consolidated basis for securities listed on the principal stock
exchange or market on which Stock is traded on the trading day prior to the day
such value is being determined. Fair Market Value relating to the exercise price
or base price of any Non-Code Section 409A Option or SAR shall conform to
requirements under Code Section 409A.
(o) "Code Section 409A Awards" means Awards that constitute a deferral
of compensation under Code Section 409A and regulations thereunder. "Non-Code
Section 409A Awards" means Awards other than Code Section 409A Awards. Although
the Committee retains authority under the Plan to grant Options, SARs and
Restricted Stock on terms that will qualify those Awards as Code Section 409A
Awards, Options, SARs exercisable for Stock, and Restricted Stock are intended
to be Non-Code Section 409A Awards unless otherwise expressly specified by the
Committee.
(p) "Incentive Stock Option" or "ISO" means any Option designated as an
incentive stock option within the meaning of Code Section 422 and qualifying
thereunder.
(q) "Option" means a right, granted under this Plan, to purchase Stock.
(r) "Other Stock-Based Awards" means Awards granted to a Participant
under Section 6(h).
2
(s) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an Eligible
Person.
(t) "Performance Award" means a conditional right, granted to a
Participant under Sections 6(i) and 7, to receive cash, Stock or other Awards or
payments.
(u) "Preexisting Plan" means the Company's 1998 Stock Incentive Plan.
(v) "Restricted Stock" means Stock granted under this Plan which is
subject to certain restrictions and to a risk of forfeiture.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
(x) "Stock" means the Company's Common Stock, par value $0.01 per share,
and any other equity securities of the Company that may be substituted or
resubstituted for Stock pursuant to Section 10(c).
(y) "Stock Appreciation Rights" or "SAR" means a right granted to a
Participant under Section 6(c).
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee, which shall have full and final authority, in each case subject to
and consistent with the provisions of the Plan, to select Eligible Persons to
become Participants; to grant Awards; to determine the type and number of
Awards, the dates on which Awards may be exercised and on which the risk of
forfeiture or deferral period relating to Awards shall lapse or terminate, the
acceleration of any such dates, the expiration date of any Award, whether, to
what extent, and under what circumstances an Award may be settled, or the
exercise price of an Award may be paid, in cash, Stock, other Awards, or other
property, and other terms and conditions of, and all other matters relating to,
Awards; to prescribe documents evidencing or setting terms of Awards (such Award
documents need not be identical for each Participant), amendments thereto, and
rules and regulations for the administration of the Plan and amendments thereto;
to construe and interpret the Plan and Award documents and correct defects,
supply omissions or reconcile inconsistencies therein; and to make all other
decisions and determinations as the Committee may deem necessary or advisable
for the administration of the Plan. Decisions of the Committee with respect to
the administration and interpretation of the Plan shall be final, conclusive,
and binding upon all persons interested in the Plan, including Participants,
Beneficiaries, transferees under Section 10(b) and other persons claiming rights
from or through a Participant, and stockholders. The foregoing notwithstanding,
the Board shall perform the functions of the Committee for purposes of granting
Awards under the Plan to non-employee directors (the functions of the Committee
with respect to other aspects of non-employee director awards is not exclusive
to the Board, however).
(b) Manner of Exercise of Committee Authority. The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee. The
Committee may act through subcommittees, including for purposes of perfecting
exemptions under Rule 16b-3 or qualifying Awards under Code Section 162(m) as
performance-based compensation, in which case the subcommittee shall be subject
to and have authority under the charter applicable to the Committee, and the
acts of the subcommittee shall be deemed to be acts of the Committee hereunder.
The Committee may delegate to officers or managers of the Company or any
subsidiary or affiliate, or committees thereof, the authority, subject to such
terms as the Committee shall determine, to perform such functions, including
administrative functions, as the Committee may
3
determine, to the extent (i) that such delegation will not result in the loss of
an exemption under Rule 16b-3(d) or (e) for Awards granted to Participants
subject to Section 16 of the Exchange Act in respect of the Company and will not
cause Awards intended to qualify as "performance-based compensation" under Code
Section 162(m) to fail to so qualify, and (ii) permitted under Section 157 and
other applicable provisions of the Delaware General Corporation Law.
(c) Limitation of Liability. Each member of the Committee and the Board
of Directors, and any person to whom authority or duties are delegated
hereunder, shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or other employee of
the Company or a subsidiary or affiliate, the Company's independent certified
public accountants, or any executive compensation consultant, legal counsel, or
other professional retained by the Company to assist in the administration of
the Plan. No member of the Board or Committee, nor any person to whom authority
or duties are delegated hereunder, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and any such person shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.
4. Stock Subject To Plan.
(a) Overall Number of Shares Available for Delivery. The total number of
shares of Stock reserved and available for delivery in connection with Awards
under the Plan shall be (i) four million shares, plus (ii) the number of shares
that, immediately prior to the Effective Date, remain available for new awards
under the Preexisting Plan plus (iii) the number of shares subject to awards
under the Preexisting Plan which become available in accordance with Section
4(b) after the Effective Date; provided, however, that the total number of
shares with respect to which ISOs may be granted shall not exceed the number
specified under clause (i) above. The total number of shares available is
subject to adjustment as provided in Section 10(c). Any shares of Stock
delivered under the Plan shall consist of authorized and unissued shares or
treasury shares.
(b) Share Counting Rules. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting (as, for
example, in the case of tandem or substitute awards) and make adjustments in
accordance with this Section 4(b). For purposes of the Plan, shares shall be
counted against those reserved to the extent such shares have been delivered and
are no longer subject to a risk of forfeiture. Accordingly, (i) to the extent
that an Award under the Plan or award under a Preexisting Plan is canceled,
expired, forfeited, settled in cash, settled by issuance of fewer shares than
the number underlying the award, or otherwise terminated without delivery of
shares to the Participant, the shares retained by or returned to the Company
will be available under the Plan; and (ii) shares that are withheld from such an
award or separately surrendered by the Participant in payment of the exercise
price or taxes relating to such an award shall be deemed to constitute shares
not delivered to the Participant and will be available under the Plan. The
Committee may determine that Awards may be outstanding that relate to more
shares than the aggregate remaining available under the Plan so long as such
Awards will not in fact result in delivery and vesting of shares in excess of
the number then available. In addition, in the case of any Award granted in
assumption of or in substitution for an award of a company or business acquired
by the Company or a subsidiary or affiliate or with which the Company or a
subsidiary or affiliate combines, shares issued or issuable in connection with
such substitute Award shall not be counted against the number of shares reserved
under the Plan.
5. Eligibility; Per-Person Award Limitations.
(a) Eligibility. Awards may be granted under the Plan only to Eligible
Persons. For purposes of the Plan, an "Eligible Person" means an employee of the
Company or any subsidiary or affiliate, including any executive officer or
non-employee director of the Company or a subsidiary or
4
affiliate, and any person who has been offered employment by the Company or a
subsidiary or affiliate, provided that such prospective employee may not receive
any payment or exercise any right relating to an Award until such person has
commenced employment with the Company or a subsidiary or affiliate. An employee
on leave of absence may be considered as still in the employ of the Company or a
subsidiary or affiliate for purposes of eligibility for participation in the
Plan, to the extent specified by the Committee. Consultants and advisors to the
Company or its subsidiaries or affiliates shall also be eligible for
participation in the Plan. For purposes of the Plan, a joint venture in which
the Company or a subsidiary has a substantial direct or indirect equity
investment shall be deemed an affiliate, if so determined by the Committee.
Holders of awards granted by a company or business acquired by the Company or a
subsidiary or affiliate, or with which the Company or a subsidiary or affiliate
combines, are eligible for grants of substitute awards granted in assumption of
or in substitution for such outstanding awards previously granted under the Plan
in connection with such acquisition or combination transaction. If a
non-employee director is required by contract to deliver any compensation from
the Company to the director's employer, the Committee may specify or permit the
director to elect that Awards be made or transferred to such director's
employer; in such case, vesting, exercisability and termination provisions and
other Award provisions specified by the Committee shall continue to apply to the
individual director and his or her service to the Company.
(b) Per-Person Award Limitations. In each calendar year during any part
of which the Plan is in effect, an Eligible Person may be granted Awards
intended to qualify as "performance-based compensation" under Code Section
162(m) under the Plan relating to up to his or her Annual Limit. A Participant's
Annual Limit, in any year during any part of which the Participant is then
eligible under the Plan, shall equal two million shares plus the amount of the
Participant's unused Annual Limit relating to the same type of Award as of the
close of the previous year, subject to adjustment as provided in Section 10(c).
For this purpose, (i) "earning" means satisfying performance conditions so that
an amount becomes payable, without regard to whether it is to be paid currently
or on a deferred basis or continues to be subject to any service requirement or
other non-performance condition, and (ii) a Participant's Annual Limit is used
to the extent an amount or number of shares may be potentially earned or paid
under an Award, regardless of whether such amount or shares are in fact earned
or paid.
(c) Limits on Non-Employee Director Awards. Non-employee directors may
be granted any type of Award under the Plan, but the aggregate number of shares
that may be delivered in connection with Awards granted to non-employee
directors shall be twenty percent of the total reserved under the Plan, and in
any five-year period a non-employee director may be granted Awards under the
Plan relating to no more than 250,000 shares, subject to adjustment as provided
in Section 10(c).
6. Specific Terms Of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Sections 10(e)
and 10(k)), such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service by the Participant, terms requiring forfeiture of Awards and gains
realized upon exercise, vesting or settlement of Awards in cases in which the
Participant engages in conduct harmful to the Company, and terms permitting a
Participant to make elections relating to his or her Award. The Committee shall
retain full power and discretion with respect to any term or condition of an
Award that is not mandatory under the Plan, subject to Section 10(k). The
Committee shall require the payment of lawful consideration for an Award to the
extent necessary to satisfy the requirements of the Delaware General Corporation
Law, and may otherwise require payment of consideration for an Award except as
limited by the Plan.
5
(b) Options. The Committee is authorized to grant Options to
Participants on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option (including both ISOs and non-qualified Options)
shall be determined by the Committee, provided that such exercise
price shall be not less than the Fair Market Value of a share of
Stock on the date of grant of such Option, subject to Section
8(a). Notwithstanding the foregoing, any substitute award granted
in assumption of or in substitution for an outstanding award
granted by a company or business acquired by the Company or a
subsidiary or affiliate, or with which the Company or a
subsidiary or affiliate combines may be granted with an exercise
price per share of Stock other than as required above.
(ii) Option Term; Time and Method of Exercise. The Committee shall
determine the term of each Option, provided that in no event
shall the term of any Option exceed a period of ten years from
the date of grant. The Committee shall determine the time or
times at which or the circumstances under which an Option may be
exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the
methods by which such exercise price may be paid or deemed to be
paid and the form of such payment (subject to Sections 10(k) and
10(l)), including, without limitation, cash, Stock (including by
withholding Stock deliverable upon exercise, if such withholding
or withholding feature will not result in additional accounting
expense to the Company), other Awards or awards granted under
other plans of the Company or any subsidiary or affiliate, or
other property (including through broker-assisted "cashless
exercise" arrangements, to the extent permitted by applicable
law), and the methods by or forms in which Stock will be
delivered or deemed to be delivered in satisfaction of Options to
Participants (including, in the case of Code Section 409A Awards,
deferred delivery of shares subject to the Option, as mandated by
the Committee, with such deferred shares subject to any vesting,
forfeiture or other terms as the Committee may specify).
(iii) ISOs. The terms of any ISO granted under the Plan shall comply in
all respects with the provisions of Code Section 422.
(c) Stock Appreciation Rights. The Committee is authorized to grant
SAR's to Participants on the following terms and conditions:
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one share of Stock on the
date of exercise over (B) the grant price of the SAR, which shall
be determined by the Committee but which in any event shall be
not less than the Fair Market Value of a share of Stock on the
date of grant of the SAR, subject to Section 8(a).
(ii) Other Terms. The Committee shall determine the term of each SAR,
provided that in no event shall the term of an SAR exceed a
period of ten years from the date of grant. The Committee shall
determine at the date of grant or thereafter, the time or times
at which and the circumstances under which a SAR may be exercised
in whole or in part (including based on achievement of
performance goals and/or future service requirements), the method
of exercise, method of settlement, form of consideration payable
in settlement, method by or forms in which Stock will be
delivered or deemed to be delivered to Participants, whether or
not a SAR shall be free-standing or in tandem or combination with
any other Award, and whether or not the SAR will be a Code
Section 409A Award or Non-Code Section 409A Award (cash SARs will
in all cases be Code
6
Section 409A Awards, except as otherwise provided under
applicable Code Section 409A regulations). The Committee may
require that an outstanding Option be exchanged for an SAR
exercisable for Stock having vesting, expiration, and other
terms substantially the same as the Option, so long as such
exchange will not result in additional accounting expense to the
Company.
(d) Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other
restrictions, if any, as the Committee may impose, which
restrictions may lapse separately or in combination at such
times, under such circumstances (including based on achievement
of performance goals and/or future service requirements), in such
installments or otherwise and under such other circumstances as
the Committee may determine at the date of grant or thereafter.
Except to the extent restricted under the terms of the Plan and
any Award document relating to the Restricted Stock, a
Participant granted Restricted Stock shall have all of the rights
of a stockholder, including the right to vote the Restricted
Stock and the right to receive dividends thereon (subject to any
mandatory reinvestment or other requirement imposed by the
Committee).
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable
restriction period, Restricted Stock that is at that time subject
to restrictions shall be forfeited and reacquired by the Company;
provided that the Committee may provide, by rule or regulation or
in any Award document, or may determine in any individual case,
that restrictions or forfeiture conditions relating to Restricted
Stock will lapse in whole or in part, including in the event of
terminations resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in
the name of the Participant, the Committee may require that such
certificates bear an appropriate legend referring to the terms,
conditions and restrictions applicable to such Restricted Stock,
that the Company retain physical possession of the certificates,
and that the Participant deliver a stock power to the Company,
endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any dividends
paid on a share of Restricted Stock shall be either (A) paid with
respect to such Restricted Stock at the dividend payment date in
cash, in kind, or in a number of shares of unrestricted Stock
having a Fair Market Value equal to the amount of such dividends,
or (B) automatically reinvested in additional Restricted Stock or
held in kind, which shall be subject to the same terms as applied
to the original Restricted Stock to which it relates, or (C)
deferred as to payment, either as a cash deferral or with the
amount or value thereof automatically deemed reinvested in shares
of Deferred Stock, other Awards or other investment vehicles,
subject to such terms as the Committee shall determine or permit
a Participant to elect. Unless otherwise determined by the
Committee, Stock distributed in connection with a Stock split or
Stock dividend, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such
Stock or other property has been distributed.
7
(e) Deferred Stock. The Committee is authorized to grant Deferred Stock
to Participants, subject to the following terms and conditions:
(i) Award and Restrictions. Issuance of Stock will occur upon
expiration of the deferral period specified for an Award of
Deferred Stock by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, Deferred
Stock shall be subject to such restrictions on transferability,
risk of forfeiture and other restrictions, if any, as the
Committee may impose, which restrictions may lapse at the
expiration of the deferral period or at earlier specified times
(including based on achievement of performance goals and/or
future service requirements), separately or in combination, in
installments or otherwise, and under such other circumstances as
the Committee may determine at the date of grant or thereafter.
Deferred Stock may be satisfied by delivery of Stock, other
Awards, or a combination thereof (subject to Section 10(l)), as
determined by the Committee at the date of grant or thereafter.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment or service during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award document evidencing the Deferred
Stock), all Deferred Stock that is at that time subject to such
forfeiture conditions shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award
document, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock
will lapse in whole or in part, including in the event of
terminations resulting from specified causes. Deferred Stock
subject to a risk of forfeiture may be called "restricted stock
units" or otherwise designated by the Committee.
(iii) Dividend Equivalents. Unless otherwise determined by the
Committee, Dividend Equivalents on the specified number of shares
of Stock covered by an Award of Deferred Stock shall be either
(A) paid with respect to such Deferred Stock at the dividend
payment date in cash or in shares of unrestricted Stock having a
Fair Market Value equal to the amount of such dividends, or (B)
deferred with respect to such Deferred Stock, either as a cash
deferral or with the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other
investment vehicles having a Fair Market Value equal to the
amount of such dividends, as the Committee shall determine or
permit a Participant to elect.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of obligations of the Company or a subsidiary or affiliate to pay cash or
deliver other property under the Plan or under other plans or compensatory
arrangements, subject to such terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to a Participant, which may be awarded on a free-standing basis or
in connection with another Award. The Committee may provide that Dividend
Equivalents shall be paid or distributed when accrued or shall be deemed to have
been reinvested in additional Stock, Awards, or other investment vehicles, and
subject to restrictions on transferability, risks of forfeiture and such other
terms as the Committee may specify.
(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock or factors that may influence
the value of Stock, including, without limitation, convertible or exchangeable
debt securities, other rights convertible or exchangeable into Stock, purchase
rights for Stock, Awards with value and
8
payment contingent upon performance of the Company or business units thereof or
any other factors designated by the Committee, and Awards valued by reference to
the book value of Stock or the value of securities of or the performance of
specified subsidiaries or affiliates or other business units. The Committee
shall determine the terms and conditions of such Awards. Stock delivered
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may also be
granted pursuant to this Section 6(h).
(i) Performance Awards. Performance Awards, denominated in cash or in
Stock or other Awards, may be granted by the Committee in accordance with
Section 7. A Performance Award constitutes an Award authorized under Section
6(b) - (h) to which performance conditions have been attached. In addition,
cash-denominated awards that may be settled by delivery of shares of Stock
issued under this Plan or other Awards may be authorized under the Company's
2005 Incentive Compensation Plan, subject to the terms and conditions of that
plan.
7. Performance Awards.
(a) Performance Awards Generally. Performance Awards may be denominated
as a number of shares of Stock or specified number of other Awards (or a
combination) which may be earned upon achievement or satisfaction of performance
conditions specified by the Committee. In addition, the Committee may specify
that any other Award shall constitute a Performance Award by conditioning the
right of a Participant to exercise the Award or have it settled, and the timing
thereof, upon achievement or satisfaction of such performance conditions as may
be specified by the Committee. The Committee may use such business criteria and
other measures of performance as it may deem appropriate in establishing any
performance conditions, and may exercise its discretion to reduce or increase
the amounts payable under any Award subject to performance conditions, except as
limited under Sections 7(b) and 7(c) in the case of a Performance Award intended
to qualify as "performance-based compensation" under Code Section 162(m).
(b) Performance Awards Granted to Covered Employees. If the Committee
determines that a Performance Award to be granted to an Eligible Person who is
designated by the Committee as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be contingent upon
achievement of a preestablished performance goal and other terms set forth in
this Section 7(b).
(i) Performance Goal Generally. The performance goal for such
Performance Awards shall consist of one or more business criteria
and a targeted level or levels of performance with respect to
each of such criteria, as specified by the Committee consistent
with this Section 7(b). The performance goal shall be objective
and shall otherwise meet the requirements of Code Section 162(m)
and regulations thereunder, including the requirement that the
level or levels of performance targeted by the Committee result
in the achievement of performance goals being "substantially
uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised and/or settled upon
achievement of any one performance goal or that two or more of
the performance goals must be achieved as a condition to grant,
exercise and/or settlement of such Performance Awards.
Performance goals may differ for Performance Awards granted to
any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business criteria
for the Company, on a consolidated basis, and/or for specified
subsidiaries or divisions or affiliates or other
9
business units of the Company shall be used by the Committee in
establishing the Performance Goal for such Award Opportunities:
(1) net sales, revenues or royalties; (2) gross profit or
pre-tax profit; (3) operating income, earnings before or after
taxes, earnings before or after interest, depreciation,
amortization, or extraordinary or special items; (4) net income
or net income per common share (basic or fully diluted); (5)
return measures, including, but not limited to, return on assets
(gross or net), return on investment, return on capital, or
return on equity; (6) cash flow, free cash flow, cash flow
return on investment (discounted or otherwise), net cash
provided by operations, or cash flow in excess of cost of
capital; (7) economic value created or economic profit; (8)
operating margin or profit margin; (9) stockholder value
creation measures, including but not limited to stock price or
total stockholder return; (10) royalties or revenues from
specific assets, projects, fees or payments received or lines of
business; (11) targets relating to expense or operating expense,
working capital targets, or operating efficiency; and (12)
strategic business criteria, consisting of one or more
objectives based on meeting specified goals relating to market
penetration, new projects, new products, new ventures,
geographic business expansion, operating goals, cost targets,
customer satisfaction, employee satisfaction, human resources
management, supervision of litigation and information
technology, and acquisitions or divestitures of subsidiaries,
affiliates or joint ventures. The targeted level or levels of
performance with respect to such business criteria may be
established at such levels and in such terms as the Committee
may determine, in its discretion, including in absolute terms,
as a goal relative to performance in prior periods, or as a goal
compared to the performance of one or more comparable companies
or an index covering multiple companies
(iii) Performance Period; Timing for Establishing Performance Goals.
Achievement of performance goals in respect of such Performance
Awards shall be measured over a performance period of up to one
year or more than one year, as specified by the Committee. A
performance goal shall be established not later than the earlier
of (A) 90 days after the beginning of any performance period
applicable to such Performance Award or (B) the time 25% of such
performance period has elapsed.
(iv) Settlement of Performance Awards; Other Terms. Settlement of
Performance Awards shall be in cash, Stock, other Awards or other
property, in the discretion of the Committee. The Committee may,
in its discretion, increase or reduce the amount of a settlement
otherwise to be made in connection with such Performance Awards,
but may not exercise discretion to increase any such amount
payable to a Covered Employee in respect of a Performance Award
subject to this Section 7(b). Any settlement which changes the
form of payment from that originally specified shall be
implemented in a manner such that the Performance Award and other
related Awards do not, solely for that reason, fail to qualify as
"performance-based compensation" for purposes of Code Section
162(m). The Committee shall specify the circumstances in which
such Performance Awards shall be paid or forfeited in the event
of termination of employment by the Participant or other event
(including a change in control) prior to the end of a performance
period or settlement of such Performance Awards.
(c) Written Determinations. Determinations by the Committee as to the
establishment of performance goals, the amount potentially payable in respect of
Performance Awards, the level of actual achievement of the specified performance
goals relating to Performance Awards, and the amount of any final Performance
Award shall be recorded in writing in the case of Performance Awards intended to
qualify under Section 162(m). Specifically, the Committee shall certify in
writing, in a manner conforming to applicable regulations under Section 162(m),
prior to settlement of each such Award granted to a Covered Employee, that the
performance objective relating to the Performance Award and
10
other material terms of the Award upon which settlement of the Award was
conditioned have been satisfied.
8. Certain Provisions Applicable To Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary or affiliate, or any business entity to be acquired by the Company or
a subsidiary or affiliate, or any other right of a Participant to receive
payment from the Company or any subsidiary or affiliate; provided, however, that
a Code Section 409A Award may not be granted in tandem with a Non-Code Section
409A Award. Awards granted in addition to or in tandem with other Awards or
awards may be granted either as of the same time as or a different time from the
grant of such other Awards or awards. Subject to Sections 10(k) and (l), the
Committee may determine that, in granting a new Award, the in-the-money value or
fair value of any surrendered Award or award or the value of any other right to
payment surrendered by the Participant may be applied to reduce the exercise
price of any Option, grant price of any SAR, or purchase price of any other
Award.
(b) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee, subject to the express limitations set forth
in Sections 6(b)(ii), 6(c)(ii) and 8 or elsewhere in the Plan.
(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan (including Sections 10(k) and (l)) and any applicable Award
document, payments to be made by the Company or a subsidiary or affiliate upon
the exercise of an Option or other Award or settlement of an Award may be made
in such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments, or on a deferred basis. The settlement of any
Award may be accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or upon occurrence of one or more
specified events, subject to Sections 10(k) and (l). Subject to Section 10(k),
installment or deferred payments may be required by the Committee (subject to
Section 10(e)) or permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include, without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents or other amounts in respect of installment or deferred payments
denominated in Stock. In the case of any Code Section 409A Award that is vested
and no longer subject to a risk of forfeiture (within the meaning of Code
Section 83), such Award will be distributed to the Participant, upon application
of the Participant, if the Participant has had an unforeseeable emergency within
the meaning of Code Sections 409A(a)(2)(A)(vi) and 409A(a)(2)(B)(ii), in
accordance with Code Section 409A(a)(2)(B)(ii).
(d) Additional Award Forfeiture Provisions. The Committee may condition
a Participant's right to receive a grant of an Award, to exercise the Award, to
retain cash, Stock, other Awards, or other property acquired in connection with
an Award, or to retain the profit or gain realized by a Participant in
connection with an Award, including cash or other proceeds received upon sale of
Stock acquired in connection with an Award, upon compliance by the Participant
with specified conditions relating to non-competition, confidentiality of
information relating to or possessed by the Company, non-solicitation of
customers, suppliers, and employees of the Company, cooperation in litigation,
non-disparagement of the Company and its officers, directors and affiliates, and
other restrictions upon or covenants of the Participant for the protection of
the Company and its business interests, including during specified periods
following termination of a Participant's employment or service to the Company.
11
9. Change in Control. Other provisions of the Plan notwithstanding but
subject to the limitations set forth in this Section 9, the Committee may
provide, in an Award agreement or in such other manner as the Committee may
specify, that in the event of a change in control or a termination of employment
or service following a change in control, any or all of the following terms will
apply:
(i) That an outstanding Award will vest in whole or in part, thereby
becoming non-forfeitable and entitling the Participant to
exercise specified rights under the Award, and that the Award
will remain outstanding for specified periods thereafter (but not
beyond the maximum term of the Award permitted under the Plan);
(ii) That an period in which settlement of an outstanding Award is to
be deferred beyond the date of vesting will immediately end,
except as limited under Code Section 409A;
(iii) That, with respect to an outstanding Award subject to the
achievement of performance goals and conditions, such performance
goals and conditions will be deemed to be met at a specified
level (for example, at target level or maximum level), or that
such level of performance will be determined in some other
manner; and/or
(iv) That an outstanding Award will be immediately settled by payment
of cash, or the Participant will be permitted during a specified
period to elect such a cash settlement, with the amount of cash
payable equal to the intrinsic value or fair value of the Award,
or a value determined in another specified manner, at a specified
date or during a specified period, except as limited under Code
Section 409A.
For purposes of the Plan, the term "change in control" shall be defined by the
Committee, and need not be the same for all Participants. Any of the terms of
Awards relating to a change in control shall apply to a Non-Code Section 409A
Award only to the extent permitted without causing the Award to become subject
to Code Section 409A, and shall apply to a Code Section 409A Award only to the
extent permitted under Code Section 409A. For this purpose, Code Section 409A
may permit some of the terms specified above to apply only if the change in
control constitutes a change in the ownership or effective control of the
Company, or in the ownership of a substantial portion of the assets of the
Company, within the meaning of Code Section 409A(a)(2)(A)(v).
10. General Provisions.
(a) Compliance with Legal and Other Requirements. The Company may, to
the extent deemed necessary or advisable by the Committee acting in good faith,
and subject to Section 10(k), postpone the issuance or delivery of Stock or
payment of other benefits under any Award until completion of such registration
or qualification of such Stock or other required action under any federal or
state law, rule or regulation, listing or other required action with respect to
any stock exchange or automated quotation system upon which the Stock or other
securities of the Company are listed or quoted, or compliance with any other
obligation of the Company, as the Committee may consider appropriate, and may
require any Participant to make such representations, furnish such information
and comply with or be subject to such other conditions as it may consider
appropriate in connection with the issuance or delivery of Stock or payment of
other benefits in compliance with applicable laws, rules, and regulations,
listing requirements, or other obligations.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Company or a subsidiary or affiliate
thereof), or assigned or transferred by such Participant otherwise than by will
or the laws of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable shall be
exercised during the lifetime of the Participant only by the Participant or his
or her
12
guardian or legal representative, except that Awards and other rights (other
than ISOs and SARs in tandem therewith) may be transferred to one or more
transferees during the lifetime of the Participant, and may be exercised by such
transferees in accordance with the terms of such Award, but only if and to the
extent such transfers are permitted by the Committee, subject to any terms and
conditions which the Committee may impose thereon (which may include limitations
the Committee may deem appropriate in order that offers and sales under the Plan
will meet applicable requirements of registration forms under the Securities Act
of 1933 specified by the Securities and Exchange Commission). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through
any Participant shall be subject to all terms and conditions of the Plan and any
Award document applicable to such Participant, except as otherwise determined by
the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.
(c) Adjustments. In the event that any large, special and non-recurring
dividend or other distribution (whether in the form of cash or property other
than Stock), recapitalization, forward or reverse split, Stock dividend,
reorganization, merger, consolidation, spin-off, combination, repurchase, share
exchange, liquidation, dissolution or other similar corporate transaction or
event affects the Stock such that an adjustment is determined by the Committee
to be appropriate and, in the case of any outstanding Award, necessary in order
to prevent dilution or enlargement of the rights of the Participant,, then the
Committee shall, in an equitable manner as determined by the Committee, adjust
any or all of (i) the number and kind of shares of Stock which may be delivered
in connection with Awards granted thereafter, (ii) the number and kind of shares
of Stock by which annual per-person Award limitations are measured under Section
5, including the share limits applicable to non-employee director Awards under
Section 5(c), (iii) the number and kind of shares of Stock subject to or
deliverable in respect of outstanding Awards and (iv) the exercise price, grant
price or purchase price relating to any Award or, if deemed appropriate, the
Committee may make provision for a payment of cash or property to the holder of
an outstanding Option (subject to Section 10(l)). In addition, the Committee is
authorized to make adjustments in the terms and conditions of, and the criteria
included in, Awards (including Performance Awards and performance goals) in
recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence, as well as acquisitions and
dispositions of businesses and assets) affecting the Company, any subsidiary or
affiliate or other business unit, or the financial statements of the Company or
any subsidiary or affiliate, or in response to changes in applicable laws,
regulations, accounting principles, tax rates and regulations or business
conditions or in view of the Committee's assessment of the business strategy of
the Company, any subsidiary or affiliate or business unit thereof, performance
of comparable organizations, economic and business conditions, personal
performance of a Participant, and any other circumstances deemed relevant;
provided that no such adjustment shall be authorized or made if and to the
extent that the existence of such authority (i) would cause Options, SARs, or
Performance Awards granted under the Plan to Participants designated by the
Committee as Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder to otherwise
fail to qualify as "performance-based compensation" under Code Section 162(m)
and regulations thereunder, or (ii) would cause the Committee to be deemed to
have authority to change the targets, within the meaning of Treasury Regulation
1.162-27(e)(4)(vi), under the performance goals relating to Options or SARs
granted to Covered Employees and intended to qualify as "performance-based
compensation" under Code Section 162(m) and regulations thereunder.
(d) Tax Provisions.
(i) Withholding. The Company and any subsidiary or affiliate is
authorized to withhold from any Award granted, any payment
relating to an Award under the Plan, including from a
distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving
an Award, and to take such other action as the Committee may deem
advisable
13
to enable the Company and Participants to satisfy obligations
for the payment of withholding taxes and other tax obligations
relating to any Award. This authority shall include authority to
withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's
withholding obligations, either on a mandatory or elective basis
in the discretion of the Committee, or in satisfaction of other
tax obligations. Other provisions of the Plan notwithstanding,
unless consented to by the Committee, only the minimum amount of
Stock deliverable in connection with an Award necessary to
satisfy statutory withholding requirements will be withheld,
unless withholding of any additional amount of Stock will not
result in additional accounting expense to the Company.
(ii) Required Consent to and Notification of Code Section 83(b)
Election. No election under Section 83(b) of the Code (to include
in gross income in the year of transfer the amounts specified in
Code Section 83(b)) or under a similar provision of the laws of a
jurisdiction outside the United States may be made unless
expressly permitted by the terms of the Award document or by
action of the Committee in writing prior to the making of such
election. In any case in which a Participant is permitted to make
such an election in connection with an Award, the Participant
shall notify the Company of such election within ten days of
filing notice of the election with the Internal Revenue Service
or other governmental authority, in addition to any filing and
notification required pursuant to regulations issued under Code
Section 83(b) or other applicable provision.
(iii) Requirement of Notification Upon Disqualifying Disposition Under
Code Section 421(b). If any Participant shall make any
disposition of shares of Stock delivered pursuant to the exercise
of an ISO under the circumstances described in Code Section
421(b) (i.e., a disqualifying disposition), such Participant
shall notify the Company of such disposition within ten days
thereof.
(e) Changes to the Plan. The Board may amend, suspend or terminate the
Plan or the Committee's authority to grant Awards under the Plan without the
consent of stockholders or Participants; provided, however, that any amendment
to the Plan shall be submitted to the Company's stockholders for approval not
later than the earliest annual meeting for which the record date is at or after
the date of such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of the New York Stock Exchange
or any other stock exchange or automated quotation system on which the Stock may
then be listed or quoted, or if such amendment would materially increase the
number of shares reserved for issuance and delivery under the Plan, and the
Board may otherwise, in its discretion, determine to submit other amendments to
the Plan to stockholders for approval; and provided further, that, without the
consent of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under any outstanding Award (for
this purpose, actions that alter the timing of federal income taxation of a
Participant will not be deemed material unless such action results in an income
tax penalty on the Participant). Without the approval of stockholders, the
Committee will not amend or replace previously granted Options or SARs in a
transaction that constitutes a "repricing," as such term is used in Section
303A.08 of the Listed Company Manual of the New York Stock Exchange. With regard
to other terms of Awards, the Committee shall have no authority to waive or
modify any such Award term after the Award has been granted to the extent the
waived or modified term would be mandatory under the Plan for any Award newly
granted at the date of the waiver or modification.
(f) Right of Setoff. The Company or any subsidiary or affiliate may, to
the extent permitted by applicable law, deduct from and set off against any
amounts the Company or a subsidiary or affiliate may owe to the Participant from
time to time, including amounts payable in connection with any Award, owed as
wages, fringe benefits, or other compensation owed to the Participant, such
amounts as may be
14
owed by the Participant to the Company, including but not limited to amounts
owed under Section 8(d), although the Participant shall remain liable for any
part of the Participant's payment obligation not satisfied through such
deduction and setoff. By accepting any Award granted hereunder, the Participant
agrees to any deduction or setoff under this Section 10(f).
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation
of trusts and deposit therein cash, Stock, other Awards or other property, or
make other arrangements to meet the Company's obligations under the Plan. Such
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the stockholders of the Company for approval shall
be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other incentive arrangements, apart from the
Plan, as it may deem desirable, including incentive arrangements and awards
which do not qualify under Code Section 162(m), and such other arrangements may
be either applicable generally or only in specific cases.
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash consideration, the Participant
shall be repaid the amount of such cash consideration. No fractional shares of
Stock shall be issued or delivered pursuant to the Plan or any Award. The
Committee shall determine whether cash, other Awards or other property shall be
issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.
(j) Compliance with Code Section 162(m). It is the intent of the Company
that Options and SARs granted to Covered Employees and other Awards designated
as Awards to Covered Employees subject to Section 7 shall constitute qualified
"performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder, unless otherwise determined by the Committee at the time
of allocation of an Award. Accordingly, the terms of Sections 7(b) and (c),
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Participant will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee as likely to be a Covered Employee with respect to a specified fiscal
year. If any provision of the Plan or any Award document relating to a
Performance Award that is designated as intended to comply with Code Section
162(m) does not comply or is inconsistent with the requirements of Code Section
162(m) or regulations thereunder, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements, and no
provision shall be deemed to confer upon the Committee or any other person
discretion to increase the amount of compensation otherwise payable in
connection with any such Award upon attainment of the applicable performance
objectives.
(k) Certain Limitations on Awards to Ensure Compliance with Code Section
409A. For purposes of this Plan, references to an award term or event (including
any authority or right of the Company or a Participant) being "permitted" under
Code Section 409A mean, for a Code Section 409A Award, that the term or event
will not cause the Participant to be liable for payment of interest or a tax
penalty under Code Section 409A and, for a Non-Code Section 409A Award, that the
term or event will not cause the Award to be treated as subject to Code Section
409A. Other provisions of the Plan
15
notwithstanding, the terms of any Code Section 409A Award and any Non-Code
Section 409A Award, including any authority of the Company and rights of the
Participant with respect to the Award, shall be limited to those terms permitted
under Code Section 409A, and any terms not permitted under Code Section 409A
shall be automatically modified and limited to the extent necessary to conform
with Code Section 409A. For this purpose, other provisions of the Plan
notwithstanding, the Company shall have no authority to accelerate distributions
relating to Code Section 409A Awards in excess of the authority permitted under
Code Section 409A, and any distribution subject to Code Section 409A(a)(2)(A)(i)
(separation from service) to a "key employee" as defined under Code Section
409A(a)(2)(B)(i) shall not occur earlier than the earliest time permitted under
Code Section 409A(a)(2)(B)(i).
(l) Certain Limitations Relating to Accounting Treatment of Awards.
Other provisions of the Plan notwithstanding, the Committee's authority under
the Plan (including under Sections 8(c), 10(c) and 10(d)) is limited to the
extent necessary to ensure that any Option or other Award of a type that the
Committee has intended to be subject to fixed accounting with a measurement date
at the date of grant or the date performance conditions are satisfied under APB
25 shall not become subject to "variable" accounting solely due to the existence
of such authority, unless the Committee specifically determines that the Award
shall remain outstanding despite such "variable" accounting. This provision
shall cease to be effective if and at such time as the Company elects to no
longer account for equity compensation under APB 25.
(m) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations or document hereunder shall be determined in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws, and applicable provisions of the Delaware
General Corporation Law and federal law.
(n) Awards to Participants Outside the United States. The Committee may
modify the terms of any Award under the Plan made to or held by a Participant
who is then resident or primarily employed outside of the United States in any
manner deemed by the Committee to be necessary or appropriate in order that such
Award shall conform to laws, regulations, and customs of the country in which
the Participant is then resident or primarily employed, or so that the Award
otherwise will have appropriate terms that advance the purposes of the Plan. An
Award may be modified under this Section 10(n) in a manner that is inconsistent
with the express terms of the Plan, so long as such modifications will not
contravene any applicable law or regulation or result in actual liability under
Section 16(b) for the Participant whose Award is modified.
(o) Limitation on Rights Conferred Under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ or service of the Company or a subsidiary or affiliate, (ii) interfering
in any way with the right of the Company or a subsidiary or affiliate to
terminate any Eligible Person's or Participant's employment or service at any
time (subject to the terms and provisions of any separate written agreements),
(iii) giving an Eligible Person or Participant any claim to be granted any Award
under the Plan or to be treated uniformly with other Participants and employees,
or (iv) conferring on a Participant any of the rights of a stockholder of the
Company unless and until the Participant is duly issued or transferred shares of
Stock in accordance with the terms of an Award or an Option is duly exercised.
Except as expressly provided in the Plan and an Award document, neither the Plan
nor any Award document shall confer on any person other than the Company and the
Participant any rights or remedies thereunder.
(p) Severability; Entire Agreement. If any of the provisions of this
Plan or any Award document is finally held to be invalid, illegal or
unenforceable (whether in whole or in part), such provision shall be deemed
modified to the extent, but only to the extent, of such invalidity, illegality
or unenforceability, and the remaining provisions shall not be affected thereby;
provided, that, if any of such
16
provisions is finally held to be invalid, illegal, or unenforceable because it
exceeds the maximum scope determined to be acceptable to permit such provision
to be enforceable, such provision shall be deemed to be modified to the minimum
extent necessary to modify such scope in order to make such provision
enforceable hereunder. The Plan and any Award documents contain the entire
agreement of the parties with respect to the subject matter thereof and
supersede all prior agreements, promises, covenants, arrangements,
communications, representations and warranties between them, whether written or
oral with respect to the subject matter thereof.
(q) Plan Effective Date and Termination. The Plan shall become effective
if, and at such time as, the stockholders of the Company have approved it by the
affirmative votes of the holders of a majority of the voting securities of the
Company present, or represented, and entitled to vote on the subject matter at a
duly held meeting of stockholders (provided that the total vote cast on the
proposal represents over 50% in interest of all securities entitled to vote on
the proposal). Upon such approval of the Plan by the stockholders of the
Company, no further awards shall be granted under the Preexisting Plan, but any
outstanding awards under the Preexisting Plan shall continue in accordance with
their terms. Unless earlier terminated by action of the Board of Directors, the
authority of the Committee to make grants under the Plan shall terminate on the
date that is ten years after the latest date upon which stockholders of the
Company have approved the Plan, and the Plan will remain in effect until such
time as no Stock remains available for delivery under the Plan and the Company
has no further rights or obligations under the Plan with respect to outstanding
Awards under the Plan.
17
APPENDIX B
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MARVEL ENTERPRISES, INC.
2005 Cash Incentive Compensation Plan
1. General
This 2005 Cash Incentive Compensation Plan (the "Plan") of Marvel
Enterprises, Inc. (the "Company") authorizes the grant of annual incentive and
long-term incentive awards to executive officers and sets forth certain terms
and conditions of such Awards. The purpose of the Plan is to help the Company
attract and retain executive officers of outstanding ability and to motivate
such persons to exert their greatest efforts on behalf of the Company and its
subsidiaries by providing incentives directly linked to the measures of the
financial success and performance of the Company and its businesses. The Plan is
intended to permit the Committee to qualify certain Awards as
"performance-based" compensation under Code Section 162(m).
2. Definitions
In addition to the terms defined in Section 1 and elsewhere in the Plan,
the following are defined terms under this Plan:
(a)...."Annual Incentive Award" means an Award earned based on
performance in a Performance Period of one fiscal year or a portion thereof.
(b) "Award" means the amount of a Participant's Award Opportunity in
respect of a Performance Period determined by the Committee to have been earned,
and the Participant's rights to current or future payments in settlement
thereof.
(c) "Award Opportunity" means the Participant's opportunity to earn
specified amounts based on performance during a Performance Period. An Award
Opportunity constitutes a conditional right to receive settlement of an Award.
(d) "Cause" means "cause" as defined in an employment agreement
between the Company and the Participant in effect at the time of Termination of
Employment. If, however, there is no such employment agreement or no definition
of "cause" therein, Cause means an individual's (i) intentional failure to
perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the
performance of duties, (iii) involvement in a transaction in connection with the
performance of duties to the Company or any of its Subsidiaries thereof which
transaction is adverse to the interests of the Company or any of its
Subsidiaries and which is engaged in for personal profit, (iv) knowing or
grossly negligent misconduct which results in the Company being required to
prepare an accounting restatement due to the material noncompliance of the
Company with any financial reporting requirement under the securities laws, (v)
willful violation of any law, rule or regulation in connection with the
performance of duties (other than traffic violations or similar offenses), or
(vi) the commission of an act of fraud or intentional misappropriation or
conversion of assets or opportunities of the Company or any Subsidiary;
provided, however, that the Committee may vary the definition of "Cause" in any
agreement or document relating to an Award.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code include and successor
provisions thereto and regulations thereunder.
(f) "Committee" means the Compensation Committee of the Board of
Directors, or such other Board committee as the Board may designate to
administer the Plan.
(g) "Covered Employee" means a person designated by the Committee as
likely, with respect to a given fiscal year of the Company, to be the Chief
Executive Officer or one of the four other most highly compensated executive
officers serving on the last day of such fiscal year. This designation generally
is required at the time an Award Opportunity is authorized. The Committee may
designate more than five persons as Covered Employees with respect to a given
year.
(h) "Participant" means an employee participating in this Plan.
(i) "Performance Goal" means the Company or individual performance
objective or accomplishment required as a condition to the earning of an Award
Opportunity.
(j) "Performance Period" means the period, specified by the
Committee, over which an Award Opportunity may be earned.
(k) "Retirement" means Termination of Employment deemed a retirement
by the Committee.
(l) "Termination of Employment" means the termination of a
Participant's employment by the Company or a subsidiary immediately after which
the Participant is not employed by the Company or any subsidiary.
3. Administration
(a) Administration by the Committee. The Plan will be administered by
the Committee, provided that the Committee may condition any of its actions on
approval or ratification by the Board of Directors or the independent directors
of the Board. The Committee shall have full and final authority to take all
actions hereunder, subject to and consistent with the provisions of the Plan.
This authority includes authority to correct any defect or supply any omission
or reconcile any inconsistency in the Plan and to construe and interpret the
Plan and any plan rules and regulations, authorization of an Award Opportunity,
Award, Award agreement, or other document hereunder; and to make all other
decisions and determinations as may be required under the terms of the Plan or
as the Committee may deem necessary or advisable for the administration of the
Plan.
(b) Manner of Exercise of Authority. Any action by the Committee or
the Board with respect to the Plan shall be final, conclusive, and binding on
all persons, including the Company, subsidiaries or affiliates, Participants,
any person claiming any rights under the Plan from or through any Participant,
and stockholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. A memorandum signed by all members of
the Committee shall constitute the act of the Committee without the necessity,
in such event, to hold a meeting. At any time that a member of the Committee is
not an "outside director" as defined under Code Section 162(m), any action of
the Committee relating to an Award intended by the Committee to qualify as
"performance-based compensation" within the meaning of Section 162(m) may be
taken by a subcommittee, designated by the Committee or the Board, composed
solely of two or more "outside directors." Such action shall be the action of
the Committee for purposes of the Plan. The foregoing notwithstanding, no action
of the Committee shall be void or deemed beyond the authority of the Committee
solely because, at the time such action was taken, one or more members of the
Committee failed to qualify as an "outside director." The Committee may delegate
to specified officers or employees of the Company authority to perform
administrative functions under the Plan, to the extent permitted by law.
2
(c) Limitation of Liability. Each member of the Committee and the
Board of Directors, and any person to whom authority or duties are delegated
hereunder, shall be entitled to, in good faith, rely or act upon any report or
other information furnished to him or her by any officer or other employee of
the Company or any subsidiary or affiliate, the Company's independent certified
public accountants, or any executive compensation consultant, legal counsel, or
other professional retained by the Company to assist in the administration of
the Plan. No member of the Board or Committee, nor any person to whom authority
or duties are delegated hereunder, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and any such person shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination, or interpretation.
4. Eligibility
Employees of the Company or any subsidiary who are or may become
executive officers of the Company may be selected by the Committee to
participate in this Plan.
5. Per-Person Award Limitation
Award Opportunities granted to any one eligible employee shall be
limited such that the amount potentially earnable of performance in any one
calendar year shall not exceed the Participant's Annual Limit. For this purpose,
the Annual Limit shall equal $10 million plus the amount of the Participant's
unused Annual Limit as of the close of the previous fiscal year. For this
purpose, (i) "earning" means satisfying performance conditions so that an Award
Opportunity becomes payable, without regard to whether it is to be paid
currently or on a deferred basis or continues to be subject to any service
requirement or other non-performance condition, and (ii) a Participant's Annual
Limit is used to the extent an amount may be potentially earned or paid under an
Award, regardless of whether such amount is in fact earned or paid.
6. Designation and Earning of Award Opportunities
(a) Designation of Award Opportunities and Performance Goals. The
Committee shall select employees to participate in the Plan for a Performance
Period and designate, for each such Participant, the Award Opportunity such
Participant may earn for such Performance Period, the nature of the Performance
Goal the achievement of which will result in the earning of the Award
Opportunity, and the levels of earning of the Award Opportunity corresponding to
the levels of achievement of the performance goal. The following terms will
apply to Award Opportunities:
(i) Specification of Amount Potentially Earnable. Unless
otherwise determined by the Committee, the Award Opportunity earnable by
each Participant shall range from 0% to a specified maximum percentage
of a specified target Award Opportunity. The Committee shall specify a
table, grid, formula, or other information that sets forth the amount of
a Participant's Award Opportunity that will be earned corresponding to
the level of achievement of a specified Performance Goal.
(ii) Denomination of Award Opportunity; Payment of Award. Award
Opportunities will be denominated in cash and Awards will be payable in
cash, except that the Committee may denominate an Award Opportunity in
shares of Common Stock and/or to settle an Award Opportunity in shares
of Common Stock if and to the extent that shares of Common Stock are
authorized for use in incentive awards and available under the Company's
1998 Stock Incentive Plan, 2005 Stock Incentive Plan or any other equity
compensation plan of the Company.
(b) Limitations on Award Opportunities and Awards for Covered
Employees. If the Committee determines that an Award Opportunity to be granted
to an eligible person who is designated a
3
Covered Employee by the Committee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the following provisions will
apply:
(i) Performance Goal. The Performance Goal for such Award
Opportunities shall consist of one or more business criteria and a
targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section
6(b). The performance goal shall be objective and shall otherwise meet
the requirements of Code Section 162(m) and regulations thereunder
(including Treasury Regulation 1.162-27 and successor regulations
thereto), including the requirement that the level or levels of
performance targeted by the Committee result in the achievement of
performance goals being "substantially uncertain." The Committee may
determine that the Award Opportunity will be earned, or tentatively
earned, based upon achievement of any one measure of performance or that
two or more measures of performance must be achieved. The Committee may
establish a "gate-keeper" Performance Goal that conforms to this Section
6(b) while specifying or considering other types of performance (which
need not meet the requirements of this Section 6(b)) as a basis for
reducing the amount of the Award deemed earned upon achievement of the
gate-keeper Performance Goal. Performance Goals may differ for Award
Opportunities granted to any one Participant or to different
Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Company, on a consolidated basis, and/or for specified
subsidiaries or affiliates, divisions or other business units of the
Company shall be used by the Committee in establishing the Performance
Goal for such Award Opportunities: (1) net sales, revenues or royalties;
(2) gross profit or pre-tax profit; (3) operating income, earnings
before or after taxes, earnings before or after interest, depreciation,
amortization, or extraordinary or special items; (4) net income or net
income per common share (basic or fully diluted); (5) return measures,
including, but not limited to, return on assets (gross or net), return
on investment, return on capital, or return on equity; (6) cash flow,
free cash flow, cash flow return on investment (discounted or
otherwise), net cash provided by operations, or cash flow in excess of
cost of capital; (7) economic value created or economic profit; (8)
operating margin or profit margin; (9) stockholder value creation
measures, including but not limited to stock price or total stockholder
return; (10) royalties or revenues from specific assets, projects, fees
or payments received or lines of business; (11) targets relating to
expense or operating expense, working capital targets, or operating
efficiency; and (12) strategic business criteria, consisting of one or
more objectives based on meeting specified goals relating to market
penetration, new projects, new products, new ventures, geographic
business expansion, cost targets, customer satisfaction, employee
satisfaction, human resources management, supervision of litigation and
information technology, and acquisitions or divestitures of
subsidiaries, affiliates or joint ventures. The targeted level or levels
of performance with respect to such business criteria may be established
at such levels and in such terms as the Committee may determine, in its
discretion, including in absolute terms, as a goal relative to
performance in prior periods, or as a goal compared to the performance
of one or more comparable companies or an index covering multiple
companies.
(iii) Performance Period and Timing for Establishing Performance
Goals. The Committee will specify the Performance Period over which
achievement of the Performance Goal in respect of such Award
Opportunities shall be measured. A Performance Goal shall be established
by the date which is the earlier of (A) 90 days after the beginning of
the applicable Performance Period or (B) the time 25% of such
Performance Period has elapsed.
(iv) Annual Incentive Awards Granted to Covered Employees. The
Committee may grant an Annual Incentive Award, intended to qualify as
"performance-based compensation" for purposes of
4
Code Section 162(m), to an eligible person who is designated a Covered
Employee for a given fiscal year.
(v) Performance Award Pool. The Committee may establish a
performance Award pool, which shall be an unfunded pool, for purposes of
measuring performance of the Company in connection with Award
Opportunities. The amount of such performance Award pool shall be based
upon the achievement of a Performance Goal or Goals based on one or more
of the business criteria set forth in Section 6(b)(ii) during the given
Performance Period, as specified by the Committee. The Committee may
specify the amount of the performance Award pool as a percentage of any
of such business criteria, a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly mathematical
relationship to such business criteria. The Committee may specify Award
Opportunities for individual Participants, in accordance with Section
6(a) and other provisions of this Section 6(b), as a percentage or other
portion or amount of the performance Award pool.
(vi) Changes to Amounts Payable Under Awards During Deferral
Periods. Any settlement or other event that would change the form of
payment from that originally specified shall be implemented in a manner
such that the Award does not, solely for that reason, fail to qualify as
"performance-based compensation" for purposes of Code Section 162(m).
(c) Additional Participants and Award Opportunity Designations During a
Performance Period. At any time during a Performance Period the Committee may
select a new employee or a newly promoted employee to participate in the Plan
for that Performance Period and/or designate, for any such Participant, an Award
Opportunity (or additional Award Opportunity) amount for such Performance
Period. In determining the amount of the Award Opportunity for such Participant
under this Section 6(c), the Committee may take into account the portion of the
Performance Period already elapsed, the performance achieved during such elapsed
portion of the Performance Period, and such other considerations as the
Committee may deem relevant.
(d) Determination of Award. Within a reasonable time after the end of
each Performance Period, the Committee shall determine the extent to which the
Performance Goal for the earning of Award Opportunities was achieved during such
Performance Period and the resulting Award to the Participant for such
Performance Period. The Committee may adjust upward or downward the amount of an
Award, in its sole discretion, in light of such considerations as the Committee
may deem relevant, except that (i) no such discretionary upward adjustment of an
Award authorized under Section 6(b) is permitted, and (ii) any discretionary
adjustment is subject to Section 5 and other applicable limitations of the Plan.
Unless otherwise determined by the Committee, the Award shall be deemed earned
and vested at the time the Committee makes the determination pursuant to this
Section 6(d).
(e) Written Determinations. Determinations by the Committee as to the
establishment of Performance Goals, the amount potentially payable in respect of
Award Opportunities, the level of actual achievement of the Performance Goals
and the amount of any final Award earned shall be recorded in writing in the
case of Performance Awards intended to qualify under Section 162(m).
Specifically, the Committee shall certify in writing, in a manner conforming to
applicable regulations under Section 162(m), with respect to any Covered
Employee prior to any settlement of each such Award, that the Performance Goal
relating to the Award and other material terms of the Award upon which
settlement was conditioned have been satisfied.
(f) Other Terms of Award Opportunities and Awards. Subject to the terms
of this Plan, the Committee may specify the circumstances in which Award
Opportunities and Awards shall be paid or forfeited in the event of a change in
control, termination of employment in circumstances other than those specified
in Section 8, or other event prior to the end of a Performance Period or
settlement of an Award.
5
With respect to Award Opportunities and Awards under Section 6(b), any payments
resulting from a change in control or termination of employment need not qualify
as performance-based compensation under Section 162(m) if the authorization of
such non-qualifying payments would not otherwise disqualify the Award
Opportunity or Award from Section 162(m) qualification in cases in which no
change in control or termination of employment occurred.
(g) Adjustments. The Committee is authorized to make adjustments in the
terms and conditions of, and the criteria included in, Award Opportunities and
related Performance Goals in recognition of unusual or nonrecurring events,
including stock splits, stock dividends, reorganizations, mergers,
consolidations, large, special and non-recurring dividends, and acquisitions and
dispositions of businesses and assets, affecting the Company and its
subsidiaries or other business unit, or the financial statements of the Company
or any subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
subsidiary or affiliate or business unit thereof, performance of comparable
organizations, economic and business conditions, personal performance of a
Participant, and any other circumstances deemed relevant; provided, however,
that no such adjustment shall be authorized or made if and to the extent that
the existence or exercise of such authority (i) would cause an Award Opportunity
or Award granted under Section 6(b) and intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to so qualify, or (ii) would cause the Committee to
be deemed to have authority to change the targets, within the meaning of
Treasury Regulation 1.162-27(e)(4)(vi), under the Performance Goals relating to
an Award Opportunity under Section 6(b) intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder.
7. Settlement of Awards.
(a) Deferrals. The Committee may specify, at the time the Award
Opportunity is authorized, that an Award will be deferred as to settlement after
it is earned. In addition, a Participant will be permitted to elect to defer
settlement of an Award if and to the extent such Participant is selected to
participate in a Company deferral program covering such Awards and the
Participant has made a valid deferral election in accordance with that plan.
Deferrals must comply with applicable requirements of Section 409A of the Code.
(b) Settlement of Award. Any non-deferred Award shall be paid and
settled by the Company promptly after the date of determination by the Committee
under Section 6(d) hereof. With respect to any deferred amount of a
Participant's Award, such amount will be credited to the Participant's deferral
account under the governing deferral plan of the Company as promptly as
practicable at or after the date of determination by the Committee under Section
6(d) hereof.
(c) Tax Withholding. The Company shall deduct from any payment in
settlement of a Participant's Award or other payment to the Participant any
Federal, state, or local withholding or other tax or charge which the Company is
then required to deduct under applicable law with respect to the Award. The
Committee may specify other withholding terms relating to an Award that will be
settled by delivery of shares of Stock or other property.
(d) Non-Transferability. An Award Opportunity, any resulting Award,
including any deferred cash amount resulting from an Award, and any other right
hereunder shall be non-assignable and non-transferable, and shall not be
pledged, encumbered, or hypothecated to or in favor of any party or subject to
any lien, obligation, or liability of the Participant to any party other than
the Company or a subsidiary or affiliate.
8. Effect of Termination of Employment.
6
Except to the extent set forth in subsections (a) and (b) of this
Section 8, upon a Participant's Termination of Employment prior to completion of
a Performance Period or, after completion of a Performance Period but prior to
the Committee's determination of the extent to which an Award has been earned
for such Performance Period, the Participant's Award Opportunity relating to
such Performance Period shall cease to be earnable and shall be canceled, and
the Participant shall have no further rights or opportunities hereunder:
(a) Disability, Death or Retirement. If Termination of Employment is due
to the permanent disability, death or Retirement of the Participant, the
Participant or his or her beneficiary shall be deemed to have earned and shall
be entitled to receive an Award for any Performance Period for which termination
occurs prior to the date of determination under Section 6(d) hereof equal to the
Award which would have been earned had Participant's employment not terminated
multiplied by a fraction the numerator of which is the number of calendar days
from the beginning of the Performance Period to the date of Participant's
Termination of Employment and the denominator of which is the number of calendar
days in the Performance Period (but such fraction shall in no event be greater
than one). Such pro rata Award will be determined at the same time as Awards for
continuing Participants are determined (i.e., normally following the end of the
Performance Period in accordance with Section 6(d) hereof). Upon its
determination, such pro rata Award shall be paid and settled promptly in cash,
except to the extent the settlement has been validly deferred in accordance with
Section 7(a). The portion of the Participant's Award Opportunity not earned will
cease to be earnable and will be canceled. For purposes of the Plan, the
existence of a "permanent disability" shall be determined by, or in accordance
with criteria and standards adopted by, the Committee. The foregoing
notwithstanding, the Committee may limit or expand the Participant's rights upon
disability, death or Retirement with respect to a given Award Opportunity.
(b) Other Terminations. In connection with any Termination of Employment
other than due to death, disability or retirement, the Committee may determine
that the Participant shall be deemed to have earned none, a portion, or all of
an Award Opportunity for a Performance Period in which Termination occurred or
for which the Committee has not yet determined the extent to which an Award has
been earned for such Performance Period, in the Committee's sole discretion.
This determination may be specified at the time the Award Opportunity is
established or made at any time thereafter.
9. Additional Forfeiture Provisions Applicable to Awards.
(a) Forfeiture Resulting from Actions Harmful to the Company. Unless
otherwise determined by the Committee, Award Opportunities Awards, and amounts
paid in settlement of Awards hereunder shall be subject to the following
additional forfeiture conditions, to which the Participant, by participating in
the Plan, agrees. If any of the events specified in Section 9(b)(i), (ii), (iii)
or (iv) occurs (a "Forfeiture Event"), all of the following forfeitures will
result:
(i) Any outstanding Award Opportunity authorized for the Participant
and any Award granted to the Participant and not yet settled will
be immediately forfeited and canceled upon the occurrence of the
Forfeiture Event; and
(ii) The Participant will be obligated to repay to the Company, in
cash, within five business days after demand is made therefor by
the Company, an amount equal to the total amount of cash plus the
fair market value of Stock or other property (as of the date of
occurrence of the Forfeiture Event) previously paid to the
Participant in settlement of any Award since the date that is 12
months prior to the occurrence of the forfeiture event or, in the
case of a Forfeiture Event specified in Section 9(b)(iv), the
period specified in Section 9(b)(iv).
(b) Events Triggering Forfeiture. The forfeitures specified in Section
9(a) will be triggered upon the occurrence of any one of the following
Forfeiture Events at any time during the Participant's
7
employment by the Company or a subsidiary or affiliate or during the one-year
period following Termination of Employment (except as otherwise provided in
Section 9(b)(iv)):
(i) The Participant, acting alone or with others, directly or
indirectly, prior to a Change in Control, (A) engages, either as
employee, employer, consultant, advisor, or director, or as an
owner, investor, partner, or stockholder unless the Participant's
interest is insubstantial, in the United States or in any other
area or region in which the Company conducts business at the date
the event occurs, which is directly in competition with a
business then conducted by the Company or a subsidiary or
affiliate; (B) induces any customer or supplier of the Company or
a subsidiary or affiliate, or an entertainment or media company
with which the Company or a subsidiary or affiliate has a
business relationship, to curtail, cancel, not renew, or not
continue his or her or its business with the Company or any
subsidiary or affiliate; or (C) induces, or attempts to
influence, any employee of or service provider to the Company or
a subsidiary or affiliate to terminate such employment or
service. The Committee shall, in its discretion, determine which
lines of business the Company conducts on any particular date and
which third parties may reasonably be deemed to be in competition
with the Company. For purposes of this Section 9(b)(i), a
Participant's interest as a stockholder is insubstantial if it
represents beneficial ownership of less than five percent of the
outstanding class of stock, and a Participant's interest as an
owner, investor, or partner is insubstantial if it represents
ownership, as determined by the Committee in its discretion, of
less than five percent of the outstanding equity of the entity;
(ii) The Participant discloses, uses, sells, or otherwise transfers,
except in the course of employment with or other service to the
Company or any subsidiary or affiliate, any confidential or
proprietary information of the Company or any subsidiary or
affiliate, including but not limited to information regarding the
Company's current and potential customers, organization,
employees, finances, and methods of operations and investments or
its concepts, ideas, products, movies, characters, or toys, so
long as such information has not otherwise been disclosed to the
public or is not otherwise in the public domain, except as
required by law or pursuant to legal process, or the Participant
makes statements or representations, or otherwise communicates,
directly or indirectly, in writing, orally, or otherwise, or
takes any other action which may, directly or indirectly,
disparage or be damaging to the Company or any of its
subsidiaries or affiliates or their respective officers,
directors, employees, advisors, businesses or reputations, except
as required by law or pursuant to legal process;
(iii) The Participant fails to cooperate with the Company or any
subsidiary or affiliate in any way, including, without
limitation, by making himself or herself available to testify on
behalf of the Company or such subsidiary or affiliate in any
action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, or otherwise fails to assist
the Company or any subsidiary or affiliate in any way, including,
without limitation, in connection with any such action, suit, or
proceeding by providing information and meeting and consulting
with members of management of, other representatives of, or
counsel to, the Company or such subsidiary or affiliate, as
reasonably requested; or
(iv) The Company is required to prepare an accounting restatement due
to the material noncompliance of the Company, as a result of
misconduct, with any financial reporting requirement under the
securities laws, if the Participant knowingly or grossly
negligently engaged in the misconduct, or knowingly or grossly
negligently failed to prevent the misconduct, or if the
Participant is one of the persons subject to automatic forfeiture
under Section 304 of the Sarbanes-Oxley Act of 2002. Forfeitures
under this Section 9(b)(iv)
8
shall apply to outstanding Award Opportunities and Awards and to
amounts paid in settlement of an Award Opportunity earned or
accrued in whole or in part during the 12-month period following
the first public issuance or filing with the Securities and
Exchange Commission (whichever first occurred) of the financial
document embodying such financial reporting requirement.
(c) Provision Does Not Prohibit Competition or Other Participant
Activities. Although the conditions set forth in this Section 9
shall be deemed to be incorporated into an Award Opportunity and
Award, a Participant is not thereby prohibited from engaging in
any activity, including but not limited to competition with the
Company and its subsidiaries and affiliates. Rather, the
non-occurrence of the Forfeiture Events set forth in Section
9(b)(i) - (iii) is a condition to the Participant's right to
realize and retain value from his or her compensatory Award
Opportunities and Awards, and the consequence under the Plan if
the Participant engages in an activity giving rise to any such
Forfeiture Event are the forfeitures specified herein. The
Company and the Participant shall not be precluded by this
provision or otherwise from entering into other agreements
concerning the subject matter of Sections 9(a) and 9(b).
(d) Committee Discretion. The Committee may, in its discretion, waive
in whole or in part the Company's right to forfeiture under this
Section (except as limited by applicable law), but no such waiver
shall be effective unless evidenced by a writing signed by a duly
authorized officer of the Company. In addition, the Committee may
impose additional conditions on Award Opportunities and Awards,
by inclusion of appropriate provisions in any document
authorizing an Award Opportunity or evidencing or governing any
Award.
10. General Provisions.
(a) Changes to this Plan. The Committee may at any time amend, alter,
suspend, discontinue, or terminate this Plan without the consent of stockholders
or Participants; provided, however, that any such action beyond the scope of the
Committee's authority shall be subject to the approval of the Board of
Directors; provided further, that any such action shall be submitted to the
Company's stockholders for approval not later than the earliest annual meeting
for which the record date is at or after the date of such Committee or Board
action if such stockholder approval is required by any federal or state law or
regulation or the rules of the New York Stock Exchange or any other stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other amendments to the Plan to stockholders for approval; and provided further,
that, without the consent of an affected Participant, no such Committee or Board
action may materially and adversely affect the rights of such Participant under
any outstanding Award (this restriction does not apply to an Award Opportunity,
however, which remains subject to the discretion of the Committee).
(b) Long-Term Incentives Not Annual Bonus for Purposes of Other Plans.
Amounts earned or payable under the Plan in connection with Awards not
designated by the Committee as "Annual Incentive Awards" shall not be deemed to
be annual incentive or annual bonus compensation (regardless of whether an Award
is earned in respect of a period of one year or less or disclosed as annual
bonus compensation under Securities and Exchange Commission disclosure rules)
for purposes of any retirement or supplemental pension plan of the Company or
any employment agreement or change in control agreement between the Company and
any Participant, or for purposes of any other plan, unless the Company shall in
writing specifically identify this Plan by name and specify that amounts earned
or payable hereunder shall be considered to be annual incentive or annual bonus
compensation.
(c) Unfunded Status of Participant Rights. Awards, accounts, deferred
amounts, and related rights of a Participant represent unfunded deferred
compensation obligations of the Company for ERISA
9
and federal income tax purposes and, with respect thereto, the Participant shall
have rights no greater than those of an unsecured creditor of the Company.
(d) Nonexclusivity of the Plan. The adoption of this Plan shall not be
construed as creating any limitations on the power of the Board or Committee to
adopt such other compensation arrangements as it may deem desirable for any
Participant.
(e) No Right to Continued Employment. Neither the Plan, the
authorization of an Award Opportunity, the grant of an Award nor any other
action taken hereunder shall be construed as giving any employee the right to be
retained in the employ of the Company or any of its subsidiaries or affiliates,
nor shall it interfere in any way with the right of the Company or any of its
subsidiaries or affiliates to terminate any employee's employment at any time.
(f) Severability. The invalidity of any provision of the Plan or a
document hereunder shall not deemed to render the remainder of this Plan or such
document invalid.
(g) Successors. The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise, and whether or not
the corporate existence of the Company continues) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform the Company's obligations under the Plan in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place; provided, however, that such successor may replace
the Plan with a plan substantially equivalent in opportunity and achievability,
as determined by a nationally recognized compensation consulting firm, and
covering the participants at the time of such succession. Any successor and the
ultimate parent company of such successor shall in any event be subject to the
requirements of this Section 10(g) to the same extent as the Company. Subject to
the foregoing, the Company may transfer and assign its rights and obligations
hereunder.
(h) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations or document hereunder shall be determined in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.
(h) Effective Date of Plan; Stockholder Approval; Termination of Plan.
This Plan shall be effective as of January 1, 2005. The Company shall submit the
Plan, including the material terms of the Plan specified in Treasury Regulation
1.162-27(e)(4), to stockholders for approval at the Company's 2005 Annual
Meeting of Stockholders, and the Plan shall be terminated without any Award
being deemed earned in the event stockholders decline to approve it at that
Annual Meeting. If approved by stockholders, the Plan will terminate at such
time as may be determined by the Board of Directors or the Committee.
10