Marvel Entertainment, Inc. – ‘PRER14A’ on 12/13/01

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Revised Preliminary Proxy Solicitation Material   —   Schedule 14A
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: PRER14A     December 13, 2001                                    147    678K 

Document Table of Contents

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 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:                                                      

/X/   Preliminary Proxy Statement                                         
/ /   Confidential, for Use of the Commission Only (as permitted by Rule  
14a-6(e)(2))                                                  
/ /   Definitive Proxy Statement                                          
/ /   Definitive Additional Materials                                     
/ /   Soliciting Material Pursuant to Section 240.14a-11(c) or Section    
240.14a-12                                                    

MARVEL ENTERPRISES, INC.
(Name of Registrant as Specified In Its 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)(4) and 0-11.  
      1) Title of each class of securities to which transaction applies: _______
   2) Aggregate number of securities to which transaction applies: _______
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): ______
4) Proposed maximum aggregate value of transaction: ______          
5) Total fee paid: ______                                           

/ /   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 or Schedule and the date of its filing.         
1) Amount Previously Paid: ______                                   
2) Form, Schedule or Registration Statement No.: ______             
3) Filing Party: ______                                             
4) Date Filed: ______                                               

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MARVEL ENTERPRISES, INC.
 10 East 40th Street
New York, New York 10016

                                                            December ___, 2001
Dear Stockholder:                                                               

         You are  cordially  invited  to  attend  the  2001  Annual  Meeting  of
Stockholders  of Marvel  Enterprises,  Inc.,  which will be held at ___________,
local time, on January __, 2002 at the __________________________, New York, New
York.  The matters to be acted upon at the Annual  Meeting are (i) a proposal to
approve and adopt an  amendment  to our restated  certificate  of  incorporation
establishing a classified board of directors having three classes with staggered
three-year  terms;  (ii) a proposal  to approve  and adopt an  amendment  to our
restated certificate of incorporation providing that any vacancy on our board of
directors be filled only by a vote of the majority of directors  then in office;
(iii) a  proposal  to  approve  and adopt an  amendment  to our  certificate  of
incorporation  eliminating  the  ability of our  stockholders  to take action by
written  consent  without a  meeting;  (iv) a proposal  to approve  and adopt an
amendment to our restated  certificate of incorporation  eliminating the ability
of our stockholders to call special meetings of the stockholders; (v) a proposal
to approve and adopt an  amendment  to our stock  option  plan to  increase  the
number of shares issuable pursuant to awards made thereunder; (vi) a proposal to
issue  warrants to Isaac  Perlmutter  entitling  him to purchase up to 5,000,000
shares of the Company's common stock; (vii) a proposal to issue stock options to
Isaac  Perlmutter  entitling  him to  purchase  up to  3,950,000  shares  of the
Company's  common  stock;  (viii)  the  election  of  our  directors;  (ix)  the
ratification  of the  appointment  of  Ernst  &  Young  LLP  as our  independent
accountants  for 2001;  and (x) such other  business as may properly come before
the Annual Meeting, all as described in the attached Notice of Annual Meeting of
Stockholders and Proxy Statement.                                               

         It is important  that your shares be  represented at the Annual Meeting
and voted in accordance with your wishes.  Whether or not you plan to attend the
Annual Meeting,  we urge you 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.                                         

          Sincerely,

              F. Peter Cuneo
                                     President and Chief Executive Officer

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PRELIMINARY COPY

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 2001  Annual  Meeting of  Stockholders
(the "Annual Meeting") of Marvel Enterprises,  Inc., a Delaware corporation (the
"Company"), will be held at ___________, local time, on January ___, 2002 at the
__________________________, New York, New York, for the following purposes:     

         1.     To  consider  and vote upon a proposal  to approve  and adopt an
                amendment to the Company's restated certificate of incorporation
                (the "Certificate of Incorporation")  proposed by the Company to
                establish a  classified  board of  directors of the Company (the
                "Board  of  Directors")  having  three  classes  with  staggered
three-year terms.                               

         2.     To  consider  and vote upon a proposal  to approve  and adopt an
                amendment to the  Certificate of  Incorporation  proposed by the
                Company to provide that any vacancy on the Board of Directors be
                filled  only  by a vote of the  majority  of  directors  then in
office.                                         

         3.     To  consider  and vote upon a proposal  to approve  and adopt an
                amendment to the  Certificate of  Incorporation  proposed by the
                Company to eliminate the ability of  stockholders of the Company
                to take  action by  written  consent  without  a meeting  of the
stockholders of the Company.                    

         4.     To  consider  and vote upon a proposal  to approve  and adopt an
                amendment to the  Certificate of  Incorporation  proposed by the
                Company to eliminate the ability of  stockholders of the Company
            to call special meetings of the stockholders of the Company.

         5.     To  consider  and vote upon a proposal  to approve  and adopt an
                amendment to the Company's 1998 Stock Incentive Plan proposed by
                the  Company to increase  the number of shares of common  stock,
                par value $.01 per share (the  "Common  Stock"),  of the Company
issuable pursuant to awards made thereunder.    

         6.     To consider and vote upon a proposal to issue  warrants to Isaac
                Perlmutter  proposed by the Company entitling him to purchase up
  to 5,000,000 shares of the Company's Common Stock.

         7.     To consider  and vote upon a proposal to issue stock  options to
                Isaac  Perlmutter  proposed  by  the  Company  entitling  him to
              purchase up to 3,950,000 shares of the Company's Common Stock.

         8.     To elect  eight  directors  of the  Company  to serve  until the
          election and qualification of their respective successors.

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         9.     To ratify the  appointment of Ernst & Young LLP as the Company's
                independent  accountants for the fiscal year ending December 31,
2001.                                           

         10.    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.                                                          

         Approval  of  each  of  proposals   one  through  four  (the   "Charter
Proposals") is conditioned  upon the approval of all the Charter  Proposals.  In
the event that any of the Charter  Proposals  are not approved by the  Company's
stockholders,  the  Certificate of  Incorporation  will remain in effect without
amendment.  Approval of proposal seven is conditioned  upon approval of proposal
five (the  "Plan  Amendment  Proposal").  In the event  that the Plan  Amendment
Proposal is not  approved by the  Company's  stockholders,  the Company will not
issue to Isaac  Perlmutter  the number of options  proposed  to be issued to him
pursuant to proposal seven.                                                     

         The Board of  Directors  has fixed the  close of  business  on  Friday,
December 28, 2001 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.        

         To ensure that your vote will be counted,  please 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,

         Allen S. Lipson
   Secretary
December ___, 2001                                                              

         If you have any  questions  or need  assistance  in voting your shares,
call D.F.  King & Co.,  Inc.,  which is  assisting  the Company  with the Annual
Meeting proxies, toll free at 1-800-628-8532.                                   

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PRELIMINARY COPY

MARVEL ENTERPRISES, INC.
 10 East 40th Street
New York, New York 10016

 -------------------

 PROXY STATEMENT
 for the
 2001 Annual Meeting of Stockholders
to be held on January __, 2002

 -------------------

         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
company (the  "Company"),  in connection with the  solicitation of proxies to be
voted at the 2001 Annual Meeting of  Stockholders  (the "Annual  Meeting") to be
held   at   ___________,    local   time,   on   January   __,   2002   at   the
__________________________,  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 ______ ___, 2001.                        

         At the Annual Meeting,  stockholders  will be asked to (1) consider and
vote upon a proposal to approve and adopt an amendment to the Company's restated
certificate of incorporation  (the "Certificate of  Incorporation")  proposed by
the Company to establish a classified  Board of Directors  having three  classes
with  staggered  three-year  terms;  (2)  consider  and vote upon a proposal  to
approve and adopt an amendment to the Certificate of  Incorporation  proposed by
the Company to provide that any vacancy on the Board of Directors be filled only
by a vote of the  majority of  directors  then in office;  (3) consider and vote
upon a  proposal  to  approve  and  adopt an  amendment  to the  Certificate  of
Incorporation  proposed by the Company to eliminate the ability of  stockholders
of the  Company  to take  action by  written  consent  without a meeting  of the
stockholders  of the  Company;  (4) consider and vote upon a proposal to approve
and adopt an  amendment  to the  Certificate  of  Incorporation  proposed by the
Company to eliminate the ability of  stockholders of the Company to call special
meetings  of the  stockholders  of the  Company;  (5)  consider  and vote upon a
proposal to approve and adopt an amendment to the Company's 1998 Stock Incentive
Plan (the "1998 Plan")  proposed by the Company to increase the number of shares
of its common  stock,  par value $.01 per share (the "Common  Stock"),  issuable
pursuant to awards made under the 1998 Plan (the "Plan Amendment"); (6) consider
and vote upon a proposal to issue warrants to Isaac Perlmutter  entitling him to
purchase up to 5,000,000  shares of the  Company's  Common  Stock (the  "Warrant
Issuance");  (7)  consider  and vote upon a proposal to issue  stock  options to
Isaac  Perlmutter  entitling  him to  purchase  up to  3,950,000  shares  of the
Company's  Common Stock (the "Stock Option  Issuance");  (8) elect the following
nominees  as   directors  of  the  Company  to  serve  until  the  election  and
qualification of their  respective  successors:  Morton E. Handel,  Avi Arad, F.
Peter Cuneo, Sid Ganis, Shelley F. Greenhaus, James F. Halpin, Lawrence Mittman,
and Isaac  Perlmutter;  (9) ratify the  appointment  of Ernst & Young LLP as the
Company's independent  accountants for the fiscal year ending December 31, 2001;
and (10)  transact  such other  business as may properly  come before the Annual
Meeting or any adjournment or postponement thereof.                             

         Approval  of  each of  proposals  one  through  four  (individually,  a
"Charter  Proposal" and  collectively,  the "Charter  Proposals") is conditioned
upon the  approval  of all the Charter  Proposals.  In the event that any of the
Charter  Proposals  are  not  approved  by  the  Company's   stockholders,   the
Certificate of Incorporation will remain in effect without  amendment.  Approval
of proposal seven is conditioned  upon approval of the Plan Amendment  proposal.
In the event that the Plan  Amendment  proposal is not approved by the Company's
stockholders,  the  Company  will not issue to Isaac  Perlmutter  the  number of
options proposed to be issued to him pursuant to proposal seven.                

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         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)
696-0808.                                                                       

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 each of
the Charter Proposals,  (2) the approval and adoption of the Plan Amendment, (3)
the approval and adoption of the Warrant Issuance, (4) the approval and adoption
of the Option Issuance, (5) the election as a director of the Company of each of
the eight nominees identified above, and (6) the ratification of the appointment
of Ernst & Young as the Company's  independent  accountants  for the fiscal year
ending December 31, 2001.                                                       

         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 the vote to (1)  approve and adopt any or all of the
Charter  Proposals,  (2) approve and adopt the Plan  Amendment,  (3) approve and
adopt the Warrant Issuance,  (4) approve and adopt the Stock Option Issuance, or
(5)  ratify  the  appointment  of  Ernst & Young  as the  Company's  independent
accountants  for the fiscal year  ending  December  31,  2001.  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.  In addition,  the Company has retained D.F. King & Co., Inc. to
assist in soliciting proxies for a fee estimated at $4,000,  plus reimbursements
of reasonable out-of-pocket expenses. 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.                                                                      

Record Date; Voting Rights                                                      

         Only holders of record of shares of the  Company's  Common Stock and 8%
Cumulative  Convertible  Exchangeable Preferred Stock, par value $0.01 per share
("8% Preferred Stock", and together with the Common Stock,  "Capital Stock"), at
the close of business on December 28, 2001 (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 (i) [33,853,881] shares of Common Stock, each of which is
entitled to one vote ([33,853,881]  votes in the aggregate,  out of [53,552,221]
total votes), and (ii) [18,958,941]  shares of 8% Preferred Stock, each of which
is  entitled  to  1.039  votes  ([19,698,340]  votes  in the  aggregate,  out of
[53,552,221] total votes).                                                      

         With  respect to all  matters  expected to be  presented  for a vote of
stockholders,  the presence,  in person or by duly  executed  proxy card, of the
holders of a majority in voting power of the outstanding shares of Capital Stock
entitled to vote at the Annual  Meeting is necessary  to  constitute a quorum in
order to transact  business.  The approval and adoption of the Charter Proposals
requires the affirmative vote of a majority of the outstanding stock entitled to
vote thereon. The approval of the Warrant Issuance, Stock                       

2 

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Option  Issuance  and  the   ratification  of  the  appointment  of  independent
accountants  each require the affirmative vote of the majority of shares present
in person or  represented  by proxy at the annual  meeting and  entitled to vote
thereon.  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.  The  approval  and  adoption  of the Plan  Amendment
requires the affirmative vote of a majority of the votes cast, provided that the
total vote cast represents a majority of the outstanding  stock entitled to vote
thereon.                                                                        

         Abstentions  and shares held by nominees that are present but not voted
on a proposal because the nominees did not have  discretionary  voting power and
were not instructed by the beneficial  owner  ("broker  non-votes")  will not be
counted as votes cast,  although they will be counted as present in  determining
whether a quorum  exists.  With  respect to the  approval  and  adoption  of the
Charter  Proposals,   the  Warrant  Issuance  and  the  Stock  Option  Issuance,
abstentions and broker non-votes will have the same effect as a vote against the
Charter  Proposals.  With  respect to the  proposal  relating to the election of
directors, abstentions and broker non-votes will be disregarded and will have no
effect on the outcome of the vote on the proposal.  With respect to the proposal
regarding  the approval and adoption of the Plan  Amendment,  provided  that the
total vote cast represents a majority of the outstanding  stock entitled to vote
thereon,  abstentions and broker  non-votes will be disregarded and will have no
effect on the outcome of the vote on the proposal.                              

         The parties to the Voting  Agreement (as defined  below) (see "Issuance
of the Warrants - Certain Transaction  Documents - Voting Agreement" below) have
the power to vote, in the aggregate,  approximately 52.6% in voting power of the
shares of Capital Stock and have agreed to vote their shares of Capital Stock in
favor of each of the Plan Amendment,  the Warrant  Issuance and the Stock Option
Issuance.  Accordingly,  a vote in  favor  of each of the  Plan  Amendment,  the
Warrant  Issuance and the Stock Option  Issuance is assured  without the vote of
any other holder of Capital Stock.                                              

 THE CHARTER PROPOSALS

         On  September  5,  2001,  the Board of  Directors  adopted  resolutions
proposing  and  recommending  that the  stockholders  of the Company  approve an
amendment  to  the  Certificate  of   Incorporation  by  approving  the  Charter
Proposals. The Charter Proposals would, among other things:                     

1.    Establish a  classified  Board of  Directors  having  three  classes  with
staggered three-year terms;                                         

2.    Provide  that any  vacancy on the Board of  Directors  be filled only by a
vote of the majority of directors then in office;                   

3.    Eliminate the ability of the stockholders of the Company to take action by
     written consent without a meeting of the stockholders of the Company; and

4.    Eliminate the ability of the  stockholders  of the Company to call special
meetings of the stockholders of the Company.                        

         Stockholders   are  urged  to  read  carefully  the   descriptions  and
discussions  of the Charter  Proposals  that follow before voting on the Charter
Proposals.                                                                      

         Approval of each Charter  Proposal is conditioned  upon the approval of
all of the Charter  Proposals.  If any Charter  Proposal  is not  approved,  the
Certificate of Incorporation will remain in effect without amendment.  If all of
the Charter Proposals are approved, the Company intends to amend the Certificate
of Incorporation by filing a certificate of amendment in substantially  the form
attached hereto as Appendix A (the  "Certificate  of Amendment")  reflecting the
Charter Proposals. The Charter Proposals                                        

3 

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would become  effective upon the filing of the Certificate of Amendment with the
Secretary of State of the State of Delaware.  Under  Delaware law, the Company's
stockholders are not entitled to dissenter's rights with respect to the proposed
amendment  to the  Certificate  of  Incorporation.  The Board of  Directors  has
reserved the right under Section 242(c) of the Delaware General  Corporation Law
(the  "DGCL") to abandon  any or all of the Charter  Proposals,  notwithstanding
approval of such Charter Proposals by the  stockholders,  without further action
by the stockholders.                                                            

         Under Article VIII of the  Certificate of  Incorporation,  the Board of
Directors  has the power and  authority to amend the by-laws of the Company.  If
the Charter Proposals are approved,  the Board of Directors intends to amend and
restate the amended and restated  by-laws of the Company (the "By-Laws") to more
closely follow and complement the amendment to the Certificate of Incorporation.
A copy of the amended and restated  By-Laws that the Board of Directors  intends
to adopt if the Charter Proposals are approved at the Annual Meeting is attached
hereto as Appendix B (the "Restated By-Laws").                                  

         Pursuant to the DGCL,  approval of each of the Charter  Proposals  will
require the affirmative vote of the holders of a majority in voting power of the
outstanding  shares of Capital Stock.  In tabulating the vote,  abstentions  and
broker  non-votes  will  have the same  effect  as a vote  against  the  Charter
Proposals.  The Board of Directors unanimously recommends that stockholders vote
FOR the approval and adoption of each of the Charter Proposals.                 

Reasons for the Charter Proposals                                               

         The Charter  Proposals are not in response to any effort,  of which the
Company  is aware,  to  accumulate  Capital  Stock or to obtain  control  of the
Company.  However, the Board of Directors has observed the relatively common use
of certain coercive takeover tactics,  including the accumulation of substantial
common  stock  positions  as a prelude to a  threatened  takeover  or  corporate
restructuring,  proxy contest and/or partial tender offer and the related use of
"two-tiered" pricing. The Board of Directors believes that the best interests of
the Company's  stockholders  will be served if appropriate  defenses to coercive
tender  offers or other  coercive  efforts to gain  control of the  Company  are
established.  The  overall  effect of the  Charter  Proposals  is to render more
difficult  the  accomplishment  of  undesired  mergers,  tender  offers or proxy
contests,  the  assumption of control by an undesired  principal  stockholder or
stockholders  group,  and/or the removal of current  management and the Board of
Directors.                                                                      

         The principal function of the Charter Proposals,  considered as a whole
and in conjunction with the Company's existing  anti-takeover  devices described
below,  is to  encourage  persons  seeking to acquire  control of the Company to
initiate such an acquisition through arm's length negotiations with the Board of
Directors rather than through a hostile takeover bid. Even in the case of an all
cash offer to all  stockholders,  the Charter Proposals  collectively  serve the
further function of providing  leverage for the Board of Directors to facilitate
a  bidding  process  and to  negotiate  for a  better  price  for the  Company's
stockholders.                                                                   

Existing Anti-Takeover Devices                                                  

         Certificate of Incorporation. The Certificate of Incorporation does not
contain  provisions  intended by the Company to serve as anti-takeover  devices.
However,  the  Certificate of  Incorporation  authorizes  250,000,000  shares of
Common  Stock,  not all of which have been  reserved or issued.  These shares of
authorized  and  available  Common  Stock  could,  within the limits  imposed by
applicable  law and the rules of the New York Stock  Exchange,  be issued by the
Company as a means to discourage a potential  acquirer  from seeking  control of
the Company by diluting  public  ownership of the Company.                      

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The  Certificate  of  Incorporation  also  authorizes  the  issuance  of  up  to
100,000,000 shares of preferred stock, par value $0.01 per share, of the Company
in one or more series,  not all of which have been reserved or issued. The Board
of Directors is authorized,  without any further action by the stockholders,  to
determine the powers, preferences, and any other rights, and the qualifications,
limitations and restrictions  thereof of any series and the designation thereof.
Pursuant  to this  provision,  the Board of  Directors  adopted a  stockholders'
rights plan.  Stockholders'  rights  plans are  designed to encourage  potential
acquirors  to  negotiate  with a company's  board of  directors  to preserve for
stockholders  the  value  of a  company  in the  event  of a  takeover  attempt,
particularly   if  the  common  stock  of  the  company  is  trading  at  prices
substantially less than the company's  long-term value.  Rights plans reduce the
likelihood  that a potential  acquiror who is unwilling to pay a market  premium
that a company's  board of directors  determines is  sufficient  will attempt to
acquire stock by means of an open market  accumulation,  front-end loaded tender
offer or other coercive or unfair takeover tactics.                             

         The  stockholders'  rights  plan was put into effect on August 22, 2000
when the  Board of  Directors  authorized  a  dividend  of one  preferred  share
purchase  right (a "Right")  for each share of Common Stock  outstanding  at the
close of business on  September  15, 2000 and 1.039  Rights for each share of 8%
Preferred Stock  outstanding at the close of business on September 15, 2000. The
Rights will cause substantial dilution to a person or group that acquires 15% or
more of the Capital Stock on terms not approved by the Board of  Directors.  The
description and terms of the Rights are set forth in a rights  agreement,  dated
as of August 22, 2000, as the same may be amended from time to time, between the
Company and American Stock Transfer & Trust Company, as Rights Agent.           

         The rights plan may  discourage  unsolicited  takeover  bids from third
parties or efforts to remove  incumbent  management,  or make these actions more
difficult to accomplish.  The rights plan was adopted to ensure that in the case
of an unsolicited  takeover  offer,  the Company and its  stockholders  would be
protected from takeover attempts,  or the acquisitions of a substantial block of
equity, on terms which may be less favorable to its stockholders  generally than
would be available in transactions  negotiated with and approved by the Board of
Directors. With the rights plan in place, if a hostile takeover is threatened or
an offer to acquire a  substantial  block of Common Stock is made,  the Board of
Directors  is better  able to manage  the  process to ensure  that any  proposal
accepted is in the best interest of all stockholders and, if required and to the
extent  practicable,  the price to the  stockholders  is maximized  and that all
stockholders are treated equally.                                               

         By-Laws.  The By-Laws  currently  provide that stockholders must comply
with a detailed notice  procedure with regard to the nomination by stockholders,
other than by or at the direction of the Board of Directors,  of candidates  for
election  as  directors  (the   "Nomination   Procedure")  and  with  regard  to
stockholder  proposals to be brought  before an annual  meeting of  stockholders
(the "Business Procedure").  Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the  stockholders may
be made at an annual meeting of stockholders pursuant to the Company's notice of
meeting,  by or at the direction of the Board of Directors,  or by a stockholder
who has given timely prior written  notice to the Secretary of the Company prior
to the meeting.  To be timely,  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 (or,
for annual  meetings  not held within 30 days before or after such  anniversary,
not later than the close of  business on the later of the 60th day prior to such
annual  meeting  or the 10th day  following  the day on which  such  meeting  is
publicly announced or disclosed) or, for nomination for election of directors at
a  special  meeting  called  for such  purpose,  not  earlier  than the close of
business  on the 90th day prior to such  special  meeting and not later than the
close of business on the later of the 60th day prior to such meeting or the 10th
day following the day on which public  announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.                                                        

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         Under  the  Nomination   Procedure,   notice  to  the  Company  from  a
stockholder  who  proposes to  nominate a person at a meeting for  election as a
director must contain certain information about that person,  including name and
addresses,  age, principal occupation,  the class and number of shares of Common
Stock or other capital stock  beneficially  owned, the consent of such person to
be nominated and such other information as would be required to be included in a
proxy statement soliciting proxies for the election of the proposed nominee, and
certain  information  about the  stockholder  proposing to nominate that person.
Under the Business  Procedure,  notice  relating to a stockholder  proposal must
contain  certain  information  about such proposal and about the stockholder who
proposes to bring the proposal  before the meeting.  Business  transacted at any
special meetings of stockholders are limited to matters relating to the purposes
stated in the notice of that meeting.                                           

         The purpose of the  Nomination  Procedure  is, by requiring a specified
amount of advance notice of nominations by stockholders,  to afford the Board of
Directors  a  meaningful  opportunity  to  consider  the  qualifications  of the
proposed  nominees during the appropriate  period when the Board of Directors is
focused on nominations  and, to the extent deemed  necessary or desirable by the
Board of  Directors,  to inform  stockholders  about the  qualifications  of the
proposed  nominee.  The purpose of the  Business  Procedure  is, by  requiring a
specified amount of advance notice of stockholder  proposals,  to provide a more
orderly  procedure for conducting  annual meetings of  stockholders  and, to the
extent deemed  necessary or desirable by the Board of Directors,  to provide the
Board of Directors  with a meaningful  opportunity to analyze such proposals and
to decide  whether it is  appropriate  to either (i) omit such  proposal or (ii)
inform stockholders, prior to such meetings, of any proposal to be introduced at
such meetings,  together with any recommendation of the Board of Directors as to
action to be taken with respect to such proposal,  so as to enable  stockholders
better to determine  whether they desire to attend such meeting or grant a proxy
to the Board of Directors as to the disposition of any such proposal.           

         Although  these  advance  notice  procedures  do not give the  Board of
Directors the power to approve or  disapprove  stockholder  nominations  for the
election of directors or any other  proposal  submitted  by  stockholders,  they
could have the effect of making more difficult a stockholder  nomination for the
election of  directors  or the  submission  by  stockholders  of  proposals at a
particular  stockholders meeting because of the specificity of the procedures to
be followed.                                                                    

         Delaware  Law.  Section  203 of the DGCL,  which is  applicable  to the
Company,  may be deemed to have  certain  anti-takeover  effects by  prescribing
certain voting requirements in instances in which there is a transaction between
a publicly held Delaware  corporation and an "interested  stockholder"  (defined
generally as a person owning 15% or more of a corporation's  outstanding  voting
stock)  during the three year period  following  the time such person  became an
interested stockholder.                                                         

         Although  Section  214  of  the  DGCL  provides  that  a  corporation's
certificate of  incorporation  may provide for cumulative  voting for directors,
the Certificate of Incorporation  does not provide for cumulative  voting.  As a
result, the holders of a majority of the shares of Common Stock have the ability
to  elect  all  of  the  directors  being  elected  at  any  annual  meeting  of
stockholders.                                                                   

Anti-Takeover Effects of the Charter Proposals                                  

         Although the Board of  Directors  believes  that the Charter  Proposals
should be adopted for the reasons set forth in this proxy  statement,  the Board
of Directors is aware that the Charter Proposals may have anti-takeover effects.
Although  the Charter  Proposals  are  designed as  protective  measures for the
Company's stockholders,  the Charter Proposals may have the effect of preventing
stockholders from realizing an opportunity to sell their shares of Capital Stock
at higher than market  prices by  deterring  unfriendly  tender  offers or other
efforts to obtain  control of the Company.  The Charter  Proposals  may have the
effect of entrenching the Board of Directors and management of the Company.     

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         The Board of Directors  believes that the Charter Proposals promote the
continuity of the Company's management and its business strategies and encourage
those seeking to obtain control of the Company to negotiate with management. The
Board of Directors believes that if the Company is to be acquired, the interests
of the stockholders will best be served by a negotiated transaction that results
from careful  consideration  of the proposed terms,  such as the availability of
the benefits of the  transaction  to all  stockholders,  the price to be paid to
stockholders (including minority  stockholders),  the form of consideration paid
and tax effects of the transaction.                                             

         The Charter  Proposals are not in response to any effort,  of which the
Company  is aware,  to  accumulate  Capital  Stock or to obtain  control  of the
Company.  The Board of  Directors  has  observed  the  relatively  common use of
certain  coercive  takeover  tactics,  including the accumulation of substantial
common  stock  positions  as a prelude to a  threatened  takeover  or  corporate
restructuring,  proxy  contests and partial tender offers and the related use of
"two-tiered"  pricing.  In  addition,  an  acquirer,  never  intending to obtain
control of a corporation, may sometimes use the threat of an unfriendly takeover
bid to drive up the market price of that  corporation's  stock as a way to force
the  corporation to repurchase  the acquirer's  shares at a premium to avert the
threat of a takeover.                                                           

         The Board of Directors believes that the use of these tactics can place
undue pressure on a  corporation's  board of directors and  stockholders  to act
hastily  and  without  complete  information  and,  therefore,   can  be  highly
disruptive  to a corporation  as well as divert  valuable  corporate  resources.
These tactics can also result in unfair differences in treatment of stockholders
between  those who act  immediately  in  response to  announcements  of takeover
activity  and those  who act  later or not at all.  The  Charter  Proposals  are
intended to  encourage  potential  acquirers  seeking  control of the Company to
initiate such an acquisition through arm's length negotiations with the Board of
Directors.                                                                      

         Even though the Board of Directors believes that the Charter Proposals,
individually and collectively,  would help to protect the Company's stockholders
and may help the Company obtain the best price in a potential transaction,  they
may also have the effect of impeding or  discouraging a merger,  tender offer or
proxy contest,  even if such a transaction  may be favorable to the interests of
some or all of the Company's  stockholders.  The Charter Proposals may delay the
assumption  of  control by a holder of a large  block of  Capital  Stock and the
removal of  incumbent  directors  and  management,  even if such  removal may be
beneficial  to  some  or all of the  Company's  stockholders.  If  adopted,  the
proposal  relating to the classified  Board of Directors  would be applicable to
every  election of  directors,  and not just those  occurring  after a change of
control of the Company.  Furthermore,  the Charter Proposals may have the effect
of deterring or frustrating  certain types of takeover  attempts that may not be
approved by the incumbent  directors,  but that the holders of a majority of the
shares of Capital Stock may deem to be in their best  interests or in which some
or all of the Company's  stockholders may receive a substantial premium over the
prevailing market price of their shares of Capital Stock.                       

         By discouraging  takeover  attempts,  the Charter  Proposals also could
have the  incidental  effect of  inhibiting  the temporary  fluctuations  in the
market price of Capital Stock that often result from actual or rumored  takeover
attempts.                                                                       

         The  Board  of  Directors  recognizes  that a  takeover  might  in some
circumstances  be beneficial to some or all of the Company's  stockholders  but,
nevertheless,  believes that the  stockholders  as a whole will benefit from the
adoption of the Charter Proposals.  The Board of Directors further believes that
it is preferable to act on the Charter Proposals now when they can be considered
carefully rather than hastily during an unsolicited bid for control.            

         The Board of Directors has carefully  considered the potential  adverse
effects of the  Charter  Proposals  and has  concluded  that these  effects  are
substantially outweighed by the benefits that the Charter Proposals, as a whole,
would afford the Company and its stockholders. Accordingly, the Board           

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of Directors unanimously  recommends that stockholders vote FOR the approval and
adoption of each of the Charter Proposals.                                      

         The Board of  Directors  has no  current  intention  to  propose  other
additional anti-takeover measures in future solicitations, although the Board of
Directors may determine to propose one or more of such measures at a later date.
Except for the filing of the  Certificate  of Amendment  and the adoption of the
Restated By-Laws, both as discussed above, the Board of Directors has no current
intention  to otherwise  adopt any other  anti-takeover  measures,  although the
Board of  Directors  may  determine  to adopt one or more of such  measures at a
later date. The Company does expect to enter into executive retention agreements
with members of management  from time to time,  which  agreements  would contain
change in  control  provisions.  Such  change  in  control  provisions  may have
anti-takeover effects.                                                          

         The Warrant  Issuance and the Stock Option  Issuance,  described below,
have the effect of increasing  the  percentage  of the  Company's  Capital Stock
owned by Isaac Perlmutter,  who is already the Company's largest stockholder and
a member of the Board of Directors. By increasing the concentration of ownership
of the  Company's  Capital  Stock,  the Warrant  Issuance  and the Stock  Option
Issuance may also have the effect of impeding or  discouraging a merger,  tender
offer or proxy contest.                                                         

Proposal to Institute a Classified Board of Directors                           

         On  September  5, 2001,  the Board of  Directors  adopted a  resolution
proposing to amend the Certificate of  Incorporation to provide for a classified
Board of Directors  having three classes of directors with staggered  three-year
terms.  Under this proposal,  approximately  one-third of the Board of Directors
would stand for election in any given year.                                     

         The Board of Directors  unanimously  recommends that  stockholders vote
FOR  the  approval  and  adoption  of  an  amendment  to  the   Certificate   of
Incorporation  to establish a classified Board of Directors having three classes
with staggered three-year terms.                                                

Effects of Proposal                                                             

         The  proposed  classified  board  provisions  would divide the Board of
Directors into three classes of directors,  with the number of directors in each
class to be as nearly equal as possible, and with each class to be elected for a
three-year term on a staggered  basis.  Directors  elected at subsequent  annual
meetings would serve  three-year  terms,  and the term of one class would expire
each year.  With a classified  Board of  Directors,  it would  generally  take a
stockholder  holding a  majority  of the  outstanding  Common  Stock two  annual
meetings of  stockholders,  rather than one, to elect a majority of the Board of
Directors.  Moreover, the DGCL provides that, unless a corporation's certificate
of  incorporation  specifically  provides  otherwise,  if a  corporation  has  a
classified  board,  the directors of the  corporation may only be removed by the
stockholders  for  cause.  The  Certificate  of  Incorporation  will  not have a
provision allowing removal of directors other than for cause.                   

         If the Charter Proposals are approved, the Certificate of Incorporation
would require that any vacancies and newly created  directorships will be filled
exclusively by vote of a majority of the directors  then in office,  even if not
constituting  a quorum (See "- Proposal to Provide for the Filling of  Vacancies
on the Board of  Directors"  below).  Any  director  so  elected by the Board of
Directors  to fill a  vacancy  would  become a member  of the same  class as the
director he or she succeeds and would hold office for the  remainder of the term
of that class and until his or her  successor  shall have been duly  elected and
qualified. This change will prevent someone from circumventing what the Board of
Directors  believes  are the  beneficial  effects of the adoption of a staggered
board  by  increasing  the size of the  Board of  Directors  and  electing  that
person's hand-picked designees to fill the newly created directorships.         

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         If the stockholders  approve the proposed  classified board provisions,
then to place the  classes of  directors  on a staggered  basis for  purposes of
annual  elections,  the  directors in Class I and Class II will  initially  hold
office for one and two-year terms,  respectively.  The directors in Class I, who
will initially serve a one-year term, will be eligible for re-election to a full
three-year  term at the annual meeting of  stockholders  to be held in 2002. The
directors in Class II, who will initially serve two-year terms, will be eligible
for re-election for full three-year  terms at the annual meeting of stockholders
to be held in 2003.  The directors in Class III, who will  initially  serve full
three-year  terms,  will be eligible for re-election for new three-year terms at
the annual meeting of  stockholders to be held in 2004. Each director will serve
until a  successor  is duly  elected and  qualified  or until his or her earlier
death,  resignation or removal. If the classified board proposal is approved and
the incumbent  directors are  re-elected,  James F. Halpin and Sid Ganis will be
elected as Class I directors,  Shelley F. Greenhaus,  Lawrence Mittman,  and Avi
Arad will be elected as Class II directors, and Morton E. Handel, F. Peter Cuneo
and Isaac Perlmutter will be elected as Class III directors.                    

Advantages of Proposal                                                          

         The Board of Directors  believes that dividing the directors into three
classes and providing that the directors will serve three-year terms rather than
one-year  terms is in the best  interest  of the  Company  and its  stockholders
because  it  should  enhance  the  continuity  and  stability  of the  Company's
management and the policies  formulated by the Board of Directors.  At any given
time,  at least  two-thirds  of the  directors  will  have one or more  years of
experience as directors of the Company.  New directors  would  therefore have an
opportunity  to become  familiar  with the affairs of the Company and to benefit
from the  experience of other  members of the Board of  Directors.  Although the
Board of  Directors  believes  the Company  has not  experienced  problems  with
continuity and stability of leadership and policy in the past, it hopes to avoid
these problems in the future.                                                   

         The Board of Directors also believes that  classification  will enhance
the Company's ability to attract and retain  well-qualified  individuals who are
able to commit the time and  resources to understand  the Company,  its business
affairs and  operations.  The continuity and quality of leadership  that results
from a  classified  Board of  Directors  should,  in the opinion of the Board of
Directors, promote the long-term value of the Company.                          

         The  Board  of  Directors  also  believes  that  the  classified  board
provisions are in the best interests of the Company and its stockholders because
they should, if adopted,  reduce the possibility that a third party could effect
a sudden  or  surprise  change in  control  of the  Board of  Directors.  With a
classified board, it is more likely that a potential  acquirer will initiate any
attempt to acquire control of the Company through arm's length negotiations with
the Board of Directors.  The classified  board  provisions  would help to ensure
that the Board of  Directors,  if confronted  by a hostile  tender offer,  proxy
contest or other surprise proposal from a third party, will have sufficient time
to review the proposal and  appropriate  alternatives to the proposal and to act
in a manner that it  believes to be in the best  interest of the Company and its
stockholders.                                                                   

         The  classified  board  provisions  do not  provide  for the removal of
directors  "without cause".  Allowing  stockholders to remove a director without
cause could be used to subvert  the  protections  afforded by the  creation of a
classified Board of Directors. One method employed by takeover bidders to obtain
control of a board of directors is to seek to acquire a  significant  percentage
of a  corporation's  outstanding  shares  through a tender  offer or open market
purchases  and, at the same time, to run a proxy contest  seeking to replace the
incumbent board with the  hand-picked  designees of the bidder who would be more
willing to approve the terms of a merger or other business  combination on terms
that might be less favorable to the other  stockholders of the corporation  than
those which would have been approved by the removed  directors.  Requiring cause
to remove a director  precludes the use of this  strategy,  thereby  encouraging
potential  takeover  bidders to obtain the  cooperation of the existing board of
directors before                                                                

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attempting a takeover. Thus, the absence of a provision allowing stockholders to
remove a director  without cause is consistent  with the concept of a classified
board in its intended  effect of moderating the pace of a change in the Board of
Directors.  The  classified  board  provisions  will not  prevent  a  negotiated
acquisition of the Company with the cooperation of the Board of Directors, and a
negotiated  acquisition could be structured in a manner that would shift control
of the Board of  Directors  to  representatives  of the  acquirer as part of the
transaction.                                                                    

Disadvantages of Proposal                                                       

         The classified board  provisions will generally delay,  deter or impede
changes  in  control  of the  Board of  Directors  or the  approval  of  certain
stockholder  proposals  that might have the  effect of  facilitating  changes in
control of the Board of  Directors,  even if the  holders  of a majority  of the
Capital  Stock  may  believe  the  changes  or  actions  would be in their  best
interests.  For example,  classifying  the Board of Directors  would  operate to
increase the time required for someone to obtain control of the Company  without
the  cooperation or approval of the incumbent  Board of Directors,  even if that
person  holds or acquires a majority  of the voting  power.  Elimination  of the
right of stockholders to remove directors without cause will make the removal of
any  director  more  difficult  (unless  cause is readily  apparent),  even if a
majority of stockholders believe removal is in their best interest. As a result,
there is an increased likelihood that the classified board provisions could have
the effect of making it easier  for  directors  to remain in office for  reasons
relating  to their  own self  interest.  The  classified  board  provisions  may
discourage  certain  tender offers and other  attempts to change  control of the
Company,  even though stockholders might feel those attempts would be beneficial
to them or the Company.  Because  tender  offers for control  usually  involve a
purchase price higher than the  prevailing  market price,  the classified  board
provisions may have the effect of preventing or delaying a bid for the Company's
shares that could be beneficial to the Company and its stockholders (See also "-
Anti-Takeover Effects of the Charter Proposals" above).                         

         At this  time the  Board  of  Directors  does not know of any  offer to
acquire  control  of the  Company,  nor does it know of any effort to remove any
director, either for cause or without cause.                                    

Proposal to Provide for the Filling of Vacancies on the Board of Directors      

         On  September  5, 2001,  the Board of  Directors  adopted a  resolution
proposing to amend the Certificate of  Incorporation to provide that any vacancy
on the Board of  Directors be filled only by a vote of the majority of directors
then  in  office,  even if not  constituting  a  quorum,  except  to the  extent
necessary to implement the provisions of the Stockholders' Agreement (as defined
below) (see  "Election  of Directors -  Compensation  Committee  Interlocks  and
Insider Participation - Stockholders'  Agreement" below) as such agreement is in
effect on September 30, 2001. The Stockholders' Agreement provides, in pertinent
part,  that  if a  director  designated  by the  parties  to  the  Stockholders'
Agreement  vacates his or her position on the Board of Directors for any reason,
including but not limited to the death,  removal or retirement of such designee,
then the parties to the  Stockholders'  Agreement that  designated such director
for  election  to the Board of  Directors  shall  have the right to  nominate  a
successor designee to fill the resultant vacancy.                               

         The Board of Directors  unanimously  recommends that  stockholders vote
FOR  the  approval  and  adoption  of  an  amendment  to  the   Certificate   of
Incorporation  to provide  that any vacancy on the Board of  Directors be filled
only by a vote of the majority of directors then in office.                     

Effects of Proposal                                                             

         This  proposal  provides  that,  except  to  the  extent  necessary  to
implement the provisions of the Stockholders' Agreement as described above, only
the remaining directors, even if less than a quorum,                            

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and not the stockholders would have the authority to fill a vacancy on the Board
of Directors. This provision is intended to further impede the rapid acquisition
of control over the Board of Directors by a potential acquirer.                 

Advantages of Proposal                                                          

         If this  proposal is approved,  stockholders  would be  prevented  from
filling a vacancy on the Board of Directors  with their own nominees.  The Board
of Directors believes that the threat of removal of the Company's  management in
the context of an unsolicited  takeover bid through a change in the  composition
of the Board of  Directors  could  severely  curtail  the  Company's  ability to
effectively negotiate with potential acquirers.                                 

Disadvantages of Proposal                                                       

         This proposal,  particularly  when  considered in conjunction  with the
proposal  to  implement  a  staggered  board of  directors  (See "-  Proposal to
Institute  a  Classified  Board of  Directors"  above),  may have the  effect of
impeding or discouraging  the efforts of potential  acquirers to seek control of
the Company (See "- Anti-Takeover Effects of the Charter Proposals" above).     

Proposal  to  Eliminate  the Right of  Stockholders  to Take  Action by  Written
Consent                                                                         

         Under the DGCL, unless otherwise  provided in a Delaware  corporation's
certificate of  incorporation,  any action  required or permitted to be taken by
stockholders  of a  corporation  may be taken  without a meeting  and  without a
stockholder  vote if a written  consent  setting forth the action to be taken is
signed by the holders of shares of outstanding stock having the requisite number
of votes  that  would be  necessary  to  authorize  such  action at a meeting of
stockholders  and is delivered in accordance with the procedures set forth under
the  DGCL.  The  Certificate  of  Incorporation  is  silent  on  the  matter  of
stockholder  action by written consent.  Accordingly,  Delaware law would permit
the holders of a majority of the Capital Stock to take such action.             

         On  September  5, 2001,  the Board of  Directors  adopted a  resolution
proposing to amend the  Certificate of  Incorporation  to eliminate the right of
stockholders to take action by written consent except to the extent necessary to
implement  the  provisions  of the  Stockholders'  Agreement  (see  "Election of
Directors  -  Compensation  Committee  Interlocks  and Insider  Participation  -
Stockholders'  Agreement" below) as such agreement is in effect on September 30,
2001 as more fully described in "- Effects of Proposal" below.                  

         The Board of Directors  unanimously  recommends that  stockholders vote
FOR  the  approval  and  adoption  of  an  amendment  to  the   Certificate   of
Incorporation to eliminate the ability of stockholders to take action by written
consent without a meeting.                                                      

Effects of Proposal                                                             

         This  proposal  would  have  the  effect  of   eliminating   action  by
stockholders  by written  consent  and  consequently  would (i) ensure  that all
stockholders would have advance notice of any proposed major corporate action by
stockholders;  (ii) ensure that all stockholders would have an equal opportunity
to  participate  at the  meeting of  stockholders  where  such  action was being
considered;  (iii)  enable the Company to set a record date for any  stockholder
voting which would reduce the possibility of disputes or confusion regarding the
validity  of  purported  stockholder  action;  and (iv)  encourage  a  potential
acquirer to negotiate directly with the Board of Directors.                     

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         The Stockholders' Agreement provides that the parties thereto will take
such action as may  reasonably be in their power to cause the Board of Directors
to include  certain  designees  of the  Investor  Group and the Lender Group (as
Investor  Group and Lender  Group are defined  under  "Election  of  Directors -
Compensation  Committee  Interlocks and Insider  Participation  -  Stockholders'
Agreement" below).  The Stockholders'  Agreement also provides that the Investor
Group and the Lender Group shall have the right to remove their designees and to
nominate  successor  designees to fill the  resultant  vacancies.  Additionally,
after July 1, 2000, decreases in beneficial ownership of Capital Stock by either
the Investor  Group or the Lender  Group below  certain  pre-determined  levels,
including  decreases that occurred prior to July 1, 2000,  result in a decreased
right  to  designate  directors  and a  forfeiture  of  seats  on the  Board  of
Directors. The Stockholders' Agreement provides that the parties thereto may act
by written consent in lieu of a special  meeting of stockholders  called for the
purpose of carrying out the foregoing nominations, removals and replacements. In
order to avoid  frustrating  such  provisions  of the  Stockholders'  Agreement,
stockholders  may  still  act by  written  consent  in  order to  implement  the
provisions of the Stockholders' Agreement as in effect on September 30, 2001.   

Advantages of Proposal                                                          

         The Board of  Directors  believes  that this  proposal  would  give all
stockholders  the opportunity to have their views taken into account and thereby
prevent a  stockholder  or group of  stockholders  that  acquires a majority  of
voting power from using a written consent to take a significant corporate action
without a meeting of the stockholders. The Board of Directors believes that this
proposal is desirable  because it preserves the opportunity for a greater number
of stockholders to be heard before any stockholder action is taken. The Board of
Directors  believes that the use of a consent procedure in lieu of a meeting and
vote of stockholders is inappropriate for a publicly owned corporation.         

         In addition,  the Board of Directors  believes that the  elimination of
stockholder  action  by  written  consent  would  help to avoid  an  ill-advised
stockholder  action in a context that might not permit the  stockholders to have
the full benefit of the  knowledge,  advice and  participation  of the Company's
management  and Board of  Directors.  The Board of Directors  believes that this
proposal would promote  negotiations  concerning any proposed acquisition of the
Company. In the context of a proposed  acquisition of the Company,  the Board of
Directors  believes  that it would be in the  long-term  best  interests  of the
Company  and its  stockholders  for the Company and any  proposed  acquirers  to
carefully negotiate the terms of the acquisition.                               

Disadvantages of Proposal                                                       

         A provision  in the  Certificate  of  Incorporation  which  effectively
requires a potential acquirer to negotiate with the Company's management and the
Board  could  be  characterized  as  increasing  management's  and the  Board of
Directors'  ability to retain their  positions  with the Company and to resist a
transaction which may be deemed  advantageous by a majority of the stockholders.
For this reason,  this proposal may have the effect of impeding or  discouraging
efforts  by  potential  bidders  to  obtain  control  of  the  Company  (See  "-
Anti-Takeover Effects of the Charter Proposals" above).                         

Proposal to Eliminate the Right of Stockholders to Call a Special Meeting       

         Article 2 of the  By-Laws  currently  allows a special  meeting  of the
Company's  stockholders to be called by the chief executive officer or secretary
of the  Company at the  written  request of not less than 15% in interest of the
stockholders entitled to vote.                                                  

         On  September  5, 2001,  the Board of  Directors  adopted a  resolution
proposing to amend the  Certificate of  Incorporation  to eliminate the right of
stockholders  to call a special  meeting  of  stockholders  except to the extent
necessary  to implement  the  provisions  of the  Stockholders'  Agreement  (see
"Election                                                                       

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of Directors - Compensation  Committee  Interlocks and Insider  Participation  -
Stockholders'  Agreement" below) as such agreement is in effect on September 30,
2001 as more fully described in "- Effects of Proposal" below.  Special meetings
of the  stockholders  may  still be called by the  chief  executive  officer  or
chairman of the board of directors or at the request in writing of a majority of
the  total   number  of   directors  in  office  when  issues  arise  for  which
stockholders'   guidance  is  required.   The  Board  of  Directors  unanimously
recommends that  stockholders vote FOR the approval and adoption of an amendment
to the Certificate of  Incorporation to eliminate the ability of stockholders of
the Company to call special meetings of the stockholders.                       

Effects of Proposal                                                             

         A common tactic of bidders attempting a takeover is to initiate a proxy
contest by calling a special  meeting.  By eliminating  such a right,  expensive
proxy  contests  can be avoided  outside  the  context of the  Company's  annual
meeting.                                                                        

         The Stockholders' Agreement provides that the parties thereto will take
such action as may  reasonably be in their power to cause the Board of Directors
to include  certain  designees of the Investor  Group and the Lender Group.  The
Stockholders'  Agreement  also provides  that the Investor  Group and the Lender
Group shall have the right to remove their  designees and to nominate  successor
designees to fill the  resultant  vacancies.  Additionally,  after July 1, 2000,
decreases in beneficial  ownership of Capital Stock by either the Investor Group
or the Lender Group below certain  pre-determined  levels,  including  decreases
that occurred  prior to July 1, 2000,  result in a decreased  right to designate
directors and a forfeiture of seats on the Board of Directors. The Stockholders'
Agreement  provides that the parties thereto shall bring about a special meeting
of  stockholders  for the purpose of  carrying  out the  foregoing  nominations,
removals and replacements.  In order to avoid frustrating such provisions of the
Stockholders'  Agreement,  special  meetings  of the  stockholders  may still be
called by the chief  executive  officer or the  secretary  of the Company at the
written request of not less than 15% in interest of the stockholders entitled to
vote in order to implement the provisions of the  Stockholders'  Agreement as in
effect on September 30, 2001.                                                   

Advantages of Proposal                                                          

         The Board of Directors  believes that this  proposal  would provide for
the orderly conduct of all Company affairs at special  meetings of stockholders.
If  the  proposal  is  approved,  a  stockholder  could  not  force  stockholder
consideration  of a proposal  over the  opposition  of the Board of Directors by
calling a special  meeting of  stockholders  prior to the next annual meeting or
prior to such time as the Board of Directors  believed such  consideration to be
appropriate.                                                                    

Disadvantages of Proposal                                                       

         This proposal may have the effect of impeding or  discouraging  efforts
by potential  bidders to obtain  control of the Company.  (See "-  Anti-Takeover
Effects of the Charter Proposals" above).                                       

AMENDMENT TO THE 1998 STOCK INCENTIVE PLAN

The Amendment                                                                   

         The 1998 Plan was adopted by the Board of Directors in November of 1998
and approved by the  stockholders  in December of 1998.  Under the 1998 Plan, an
aggregate  of six  million  shares of Common  Stock may be made the  subject  of
options, stock appreciation rights, restricted stock awards,  performance shares
and  performance  units  (collectively,  "Awards"),  provided that the number of
shares of Common                                                                

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Stock that may be the  subject of Awards  granted to any  individual  during any
calendar  year may not exceed one million  shares.  The Board of  Directors  has
determined  that  the  number  of  shares  remaining  under  the  1998  Plan  is
insufficient to continue to meet the Company's needs of attracting and retaining
executive  officers,  directors and other key employees.  The Board of Directors
has also  determined that the limit on the number of shares of Common Stock that
may be the subject of Awards  granted to an  individual  during a calendar  year
should also be increased to allow the Company to attract and retain  individuals
of exceptional  talent and importance to the Company.  As a result,  on November
28, 2001, the Board of Directors adopted,  subject to stockholder  approval,  an
amendment  (the  "Plan  Amendment")  to the 1998 Plan  increasing  the number of
shares of Common Stock that may be issued upon exercise of Awards under the 1998
Plan by an  additional  ten  million  shares and  increasing  the number of such
shares that may be the subject of Awards  granted to any  individual  during any
calendar year to four million shares.                                           

         The principal  provisions of the 1998 Plan are  summarized  below.  The
following  summary of the material  provisions of the 1998 Plan does not purport
to be complete and is qualified in its entirety by the terms of the 1998 Plan, a
complete  copy of which is  attached  hereto as  Appendix  C. A copy of the Plan
Amendment is attached hereto as Appendix D.                                     

         The Board of  Directors  is seeking  stockholder  approval  of the Plan
Amendment in order to satisfy the  requirements of the Internal Revenue Code for
favorable  tax  treatment of Incentive  Stock Options and to satisfy the listing
requirements  of the New York Stock Exchange.  Stockholder  approval of the Plan
Amendment  will  require the  affirmative  vote of a majority of the votes cast,
provided that the total vote cast represents a majority of the Capital Stock. In
tabulating the vote,  abstentions  and broker  non-votes will be disregarded and
will  have no  effect  on the  outcome  of the  vote.  The  Board  of  Directors
unanimously  recommends that  stockholders vote FOR the approval and adoption of
the Plan Amendment.                                                             

Summary of the Plan                                                             

         Under the 1998 Plan,  Awards may be granted to officers,  employees and
directors of the Company and its subsidiaries and to consultants and advisors to
the Company or its subsidiaries (collectively, "Participants"). The 1998 Plan is
intended to provide financial incentives to the Participants, rewarding them for
making  significant  contributions to the Company's success and encouraging them
to associate their interests with those of the Company and its stockholders. The
1998 Plan should also assist the Company in attracting  and retaining  competent
and dedicated individuals whose efforts will be important in helping the Company
achieve its long-term growth objectives.                                        

        The 1998 Plan is administered by a "Committee" which is composed of at
least two directors of the Company, each of whom is a "non-employee director"   
within the meaning of Rule 16b-3 promulgated under Section 16(b) ("Rule 16b-3") 
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and an  
"outside director" within the meaning of regulations promulgated under Section  
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant  
to the 1998 Plan, the Committee selects Participants to whom Awards will be     
granted and determines the type, size, terms and conditions of Awards, including
the per share purchase price and vesting provisions of options and the          
restrictions or performance criteria relating to restricted stock and           
performance awards. The Committee also administers, construes and interprets the
1998 Plan.                                                                      

Securities to be Offered                                                        

         Upon approval of the Plan Amendment,  under the 1998 Plan the aggregate
number of shares of Common Stock ("Shares") which may be issued upon exercise of
Awards,  as amended,  will be sixteen million;  however,  no Participant will be
permitted to receive Awards with respect to more than four                      

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million  Shares  during  any  calendar  year.  In the  event  of any  Change  in
Capitalization  (as defined below),  the Committee may adjust the maximum number
and class of Shares with respect to which  Awards may be granted  under the 1998
Plan, the maximum number of Shares with respect to which options or other Awards
may be  granted  to any  Participant  during  any year,  the number and class of
Shares which are subject to outstanding  Awards granted under the 1998 Plan, and
if applicable, the purchase price therefor. In addition, if any Award expires or
terminates without having been exercised, the Shares subject to that Award again
become  available  for grant under the 1998 Plan.  A "Change in  Capitalization"
means any increase or  reduction  in the number of Shares,  or any change in the
Shares of exchange  of Shares for a different  number or kind of shares or other
securities of the Company,  by reason of a  reclassification,  recapitalization,
merger, consolidation,  reorganization, spin-off, split-up, issuance of warrants
or rights or  debentures,  stock  dividend,  stock split or reverse stock split,
cash dividend, property dividend,  combination or exchange of shares, repurchase
of shares, change in corporate structure or otherwise.                          

Individuals Who May Participate in the 1998 Plan                                

         All of the Company's (and its  subsidiaries')  officers,  employees and
directors together with its (and its subsidiaries') advisors and consultants are
eligible to receive Awards under the 1998 Plan. Awards under the 1998 Plan shall
be granted at the sole  discretion  of the  Committee.  The granting of an Award
does not confer upon the  Participant any right to continue in the employ of the
Company or any of its  subsidiaries  or affect any right or power of the Company
or any of its  subsidiaries to terminate the services of such Participant at any
time.  As of the date of this proxy  statement,  the class of  Participants  was
approximately 1,200 persons.                                                    

Awards                                                                          

         Options.  The Committee may grant to  Participants  options to purchase
Shares.  Subject to the provisions of the Code,  options may be either incentive
stock options (within the meaning of Section 422 of the Code)  ("Incentive Stock
Options") or nonqualified  stock options (an option which does not qualify as an
Incentive Stock Option)  ("Nonqualified Stock Options").  The per Share purchase
price (i.e., the "exercise price") under each option shall be established by the
Committee at the time the option is granted.  The per Share exercise price of an
option  shall not be less than 100% of the fair  market  value of a Share on the
date the  option  is  granted  (110% in the case of an  Incentive  Stock  Option
granted to a ten-percent stockholder). Options will be exercisable at such times
and in such  installments  as  determined  by the  Committee.  The Committee may
accelerate  the  exercisability  of any option at any time.  Each option granted
pursuant to the 1998 Plan shall be for such term as determined by the Committee,
provided,  however,  that no option shall be exercisable after the expiration of
ten years  from its grant  date (five  years in the case of an  Incentive  Stock
Option  granted to a  ten-percent  stockholder).  The agreement  evidencing  the
option grant shall set forth the terms and conditions  applicable to such option
upon a  termination  or  change in the  employment  status  of the  optionee  as
determined by the Committee.  The Committee may also grant  dividend  equivalent
rights in tandem with an option.                                                

         Unless permitted by the Committee,  options are not transferable by the
optionee other than by will or the laws of descent and  distribution  and may be
exercised during the optionee's  lifetime only by the optionee or the optionee's
guardian  or legal  representative.  The  purchase  price  for  Shares  acquired
pursuant  to the  exercise  of an  option  must be  paid  (i) in  cash,  (ii) by
transferring  Shares to the Company,  or (iii) a combination  of the  foregoing,
upon such terms and conditions as determined by the Committee.                  

         Stock Appreciation  Rights. The 1998 Plan permits the granting of stock
appreciation  rights  to  Participants  in  connection  with an  option  or as a
freestanding  right. A stock  appreciation right permits the grantee to receive,
upon exercise, cash and/or Shares, at the discretion of the Committee,  equal in
value to an amount  determined by multiplying (i) the excess, if any, of (x) for
those granted in connection  with an option,  the fair market value per Share on
the date preceding the exercise date over the purchase price per                

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Share under the related option,  or (y) for those not granted in connection with
an option,  the fair market value per Share on the date  preceding  the exercise
date  over the fair  market  value  per  Share on the  grant  date of the  stock
appreciation  right  by (ii)  the  number  of  Shares  as to  which  such  stock
appreciation right is being exercised.                                          

         Stock  appreciation  rights granted in connection  with an option cover
the same Shares as those covered by such option and are generally subject to the
same terms. A stock  appreciation  right granted in connection with an Incentive
Stock  Option is  exercisable  only if the fair  market  value of a Share on the
exercise  date exceeds the  purchase  price  specified in the related  Incentive
Stock Option agreement.  Freestanding stock appreciation rights shall be granted
on such terms and conditions as shall be determined by the Committee,  but shall
not have a term of greater than ten years.                                      

         Restricted Stock. The terms of a restricted stock Award,  including the
restrictions  placed  on  such  Shares  and the  time or  times  at  which  such
restrictions  will lapse,  shall be  determined by the Committee at the time the
Award is made.  The  Committee  may determine at the time an Award of restricted
stock is granted that dividends paid on such restricted stock may be paid to the
grantee or deferred and, if deferred,  whether such dividends will be reinvested
in  shares of Common  Stock.  Deferred  dividends  (together  with any  interest
accrued  thereon)  will be paid upon the  lapsing of  restrictions  on shares of
restricted stock or forfeited upon the forfeiture of shares of restricted stock.
The agreements  evidencing  Awards of restricted stock shall set forth the terms
and  conditions  of such Awards upon a grantee's  termination  of  employment or
service.                                                                        

         Performance  Units  and  Performance  Shares.   Performance  units  and
performance  shares will be awarded at such times as the Committee may determine
and the vesting of performance  units and  performance  shares is based upon the
attainment of specified performance objectives by the Corporation,  a subsidiary
or a division within the specified performance period (the "Performance Cycle").
Performance  objectives and the length of the Performance  Cycle for performance
units and performance shares will be determined by the Committee at the time the
Award is made. Prior to the end of a Performance  Cycle,  the Committee,  in its
discretion,  may  adjust  the  performance  objectives  to  reflect  a Change in
Capitalization,  a change in the tax rate or book tax rate of the Company or any
subsidiary,  or any other event which may materially  affect the  performance of
the Company,  a subsidiary  or division.  The  agreements  evidencing  Awards of
performance units and performance shares will set forth the terms and conditions
of such  Awards,  including  those  applicable  in the  event  of the  grantee's
termination of employment.  Each  performance  unit will represent one Share and
payments in respect of vested  performance units will be made in cash, Shares or
Shares  of  restricted  stock or any  combination  of cash,  Shares or Shares of
restricted  stock.  The Committee will determine the total number of performance
shares subject to an Award and the time or times at which the performance shares
will be issued to the grantee at the time the Award is made.  In  addition,  the
Committee  will  determine  (a) the time or times at which the  awarded  but not
issued  performance  shares  shall be issued to the  grantee and (b) the time or
times at which awarded and issued  performance  shares shall become vested in or
forfeited by the grantee,  in either case based upon the attainment of specified
performance  objectives  within the Performance  Cycle. At the time the Award of
performance  shares is made,  the Committee may determine that dividends be paid
or deferred on the performance shares issued.  Deferred dividends (together with
any interest  accrued  thereon) will be paid upon the lapsing of restrictions on
performance shares or forfeited upon the forfeiture of performance shares.      

Additional Information                                                          

         The 1998 Plan provides that in satisfaction  of the federal,  state and
local  income  taxes and other  amounts as may be required by law to be withheld
with  respect to an option or other  Award,  the  optionee or grantee may make a
written election to have withheld a portion of the Shares issuable to him or her
having an aggregate fair market value equal to the withholding taxes.           

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         The  Committee  shall have the authority at the time a grant of options
or an Award is made to award  designated  optionees or grantees tax bonuses that
shall be paid on the  exercise of such  options or payment of such  Awards.  The
Committee  shall have full  authority  to  determine  the amount of any such tax
bonus and the terms and conditions affecting the vesting and payment thereof.   

         The 1998 Plan will terminate on the day preceding the tenth anniversary
of its  effective  date.  The Board of Directors may terminate or amend the 1998
Plan at any time, except that (i) no such amendment or termination may adversely
affect outstanding Awards, and (ii) to the extent necessary under applicable law
or securities  exchange rule, no amendment will be effective  unless approved by
stockholders.                                                                   

         The closing price of the Common Stock as reported on the New York Stock
Exchange on December , 2001 was $ per share.                                    

Federal Income Tax Consequences Relating to Options                             

         Summarized  below are the  federal  income  tax  consequences  that the
Company  expects  (based on current tax laws,  rules and  interpretations)  with
respect to Awards.                                                              

         Incentive  Stock  Options.  In general,  an optionee will not recognize
taxable  income  upon grant or  exercise of an  Incentive  Stock  Option and the
Company will not be entitled to any business  expense  deduction with respect to
the grant or exercise of an Incentive Stock Option.                             

         Upon the exercise of an Incentive Stock Option,  however, the excess of
the fair market  value on the date of the exercise of the Shares  received  over
the exercise  price of Shares will be treated as an  adjustment  to  alternative
minimum taxable  income.  In order for the exercise of an Incentive Stock Option
to qualify for the foregoing tax  treatment,  the optionee  generally must be an
employee of the Company or a subsidiary from the date the Incentive Stock Option
is granted through the date three months before the date of exercise,  except in
the case of death or disability, where special rules apply.                     

         If the  optionee  has held the  Shares  acquired  upon  exercise  of an
Incentive Stock Option for at least two years after the date of grant and for at
least one year after the date of exercise, upon disposition of the Shares by the
optionee,  the difference,  if any, between the sale price of the Shares and the
exercise price of the option will be treated as long-term  capital gain or loss.
If the optionee does not satisfy these holding period requirements, the optionee
will  recognize  ordinary  income at the time of the  disposition of the Shares,
generally  in an  amount  equal to the  excess of the fair  market  value of the
Shares at the time the  option  was  exercised  over the  exercise  price of the
option.  The balance of gain  realized,  if any, will be long-term or short-term
capital  gain,  depending  on whether or not the Shares  were sold more than one
year after the option was  exercised.  If the optionee sells the Shares prior to
the  satisfaction  of the holding period  requirements  but at a price below the
fair market value of the Shares at the time the option was exercised, the amount
of ordinary  income will be limited to the excess of the amount  realized on the
sale over the exercise price of the option. Subject to the discussion below with
respect to Section  162(m) of the Code,  the Company  will be allowed a business
expense deduction to the extent the optionee recognizes ordinary income.        

         Nonqualified  Stock  Options.   In  general,  an  optionee  to  whom  a
Nonqualified Stock Option is granted will recognize no income at the time of the
grant of the  option.  Upon the  exercise of a  Nonqualified  Stock  Option,  an
optionee  will  generally  recognize  ordinary  income in an amount equal to the
amount  by which the fair  market  value of the  Shares on the date of  exercise
exceeds the exercise price of the option (special rules may apply in the case of
an optionee who is subject to Section 16(b) of the Exchange Act). If the Company
complies  with  applicable  withholding  requirements,  it will be entitled to a
business  expense  deduction  in the same  amount  and at the  same  time as the
optionee recognizes ordinary income.                                            

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         Stock Appreciation  Rights (SARs). In general, a grantee to whom an SAR
is granted will recognize no income at the time of the grant of the option. Upon
exercise of an SAR, the grantee must recognize taxable compensation income in an
amount  equal to the value of any cash or Shares that the grantee  receives.  In
general,  the Company  will be entitled  to a deduction  for federal  income tax
purposes  at the  same  time  and in the  same  amount  as the  ordinary  income
recognized  by the grantee upon  exercise of the SAR (subject to the  discussion
below with respect to Section 162(m) of the Code).                              

         Restricted  Stock.  In general,  a grantee of  restricted  stock or any
performance award will recognize no income at the time of the grant,  unless the
grantee of restricted stock elects to accelerate  income taxation to the date of
the award,  and thereby  recognizes  ordinary  income equal to the excess of the
market value of the restricted  shares over any amount the grantee pays for them
(in which case  subsequent  gain or loss  would be  capital  in nature,  and the
Company's  deduction would equal the income  recognized by the grantee as of the
date of the restricted stock award).                                            

         If a grantee has not elected to accelerate  income taxation to the date
of a  restricted  stock award and the  restrictions  on such stock  subsequently
lapse, the grantee must recognize taxable compensation income in an amount equal
to the  value of any cash or  Shares  that the  grantee  receives.  The same tax
consequences apply to performance units and performance  shares. With respect to
these Awards generally,  the Company will be entitled to a deduction for federal
income  tax  purposes  at the same time and in the same  amount as the  ordinary
income recognized by the grantee pursuant to the restricted stock or performance
award  (subject to the  discussion  below with respect to Section  162(m) of the
Code).                                                                          

         Special Tax Provisions.  Under certain  circumstances,  the accelerated
vesting,  cashout or accelerated  lapse of  restrictions on Awards in connection
with a change in control  of the  Company  might be deemed an "excess  parachute
payment" for purposes of the golden  parachute tax provisions of Section 280G of
the Code.  To the extent it is so  considered,  the optionee may be subject to a
20% excise tax and the Company may be denied a tax deduction.                   

         Section  162(m) of the Code and the  regulations  thereunder  generally
would disallow the Company a federal income tax deduction for compensation  paid
to the chief  executive  officer  and the four  other  most  highly  compensated
executive  officers  to the  extent  such  compensation  paid  to  any  of  such
individuals  exceeds one million dollars in any year.  Section 162(m)  generally
does not  disallow a  deduction  for  payments of  qualified  "performance-based
compensation"  the material  terms of which have been approved by  stockholders.
The  Company  intends  that   compensation   attributable   to  options,   stock
appreciation  rights and performance  Awards granted under the 1998 Plan will be
qualified "performance-based compensation." To qualify, the Company has obtained
stockholder approval of the 1998 Plan.                                          

New Plan Benefits                                                               

         As stated  above,  the 1998 Plan is  administered  by a Committee.  The
Committee has the  authority to determine the amounts,  terms and grant dates of
Awards to be granted in the future to the  Participants.  As of the date hereof,
no such Award determinations have been made pursuant to the 1998 Plan, including
Award  determinations  with  respect to the  additional  Shares  available  upon
approval of the Plan Amendment other than the Stock Option Issuance. Even if the
Plan  Amendment had been in effect last year, no additional  Awards,  other than
the Stock  Option  Issuance,  would  have  occurred  because  sufficient  shares
remained  available  for  grant  under the 1998  Plan as in  effect  before  its
amendment.                                                                      

         The following table sets forth information  concerning  options granted
under the 1998 Plan to each of the  executive  officers  named in the  executive
compensation table in this proxy statement;  all current executive officers as a
group;  all current  directors who are not executive  officers as a group;  each
nominee  for  election  as  director;  each  associate  of any  such  directors,
executive officers or nominees;                                                 

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each other  person who  received  or is to receive 5% of such  options;  and all
employees,  including all current officers who are not executive officers,  as a
group:                                                                          

                                                        [Enlarge/Download Table]


                                                                                     Number of Options Granted    
                                                                                     -------------------------    
Name and Position                                                                        under the 1998 Plan      
-----------------                                                                        -------------------      
                                                                                                                  
Named executive officers:                                                                                         
    F. Peter Cuneo............................................................................      1,000,000     
         President and Chief Executive Officer                                                                    
    Alan Fine.................................................................................        515,000     
         President and Chief Executive Officer                                                                    
         of the Company's Toy Biz Division                                                                        
    Avi Arad..................................................................................      1,100,000     
         Chief Creative Officer of the Company and                                                                
         President and Chief Executive Officer                                                                    
         of the Company's Marvel Studios Division                                                                 
    William Jemas, Jr.........................................................................        250,000     
         President of Publishing and Consumer Products                                                            
    Richard E. Ungar..........................................................................        250,000     
         President of Marvel Characters Group                                                                     
All current executive officers as a group.....................................................      3,390,000     
All current directors who are not executive officers as a group...............................      4,160,000  (1)
Nominees for election as a director:                                                                              
    Morton E. Handel..........................................................................         60,000     
    Avi Arad..................................................................................      1,100,000     
    F. Peter Cuneo............................................................................      1,000,000     
    Sid Ganis.................................................................................         30,000     
    Shelley F. Greenhaus......................................................................         30,000     
    James F. Halpin...........................................................................         30,000     
    Lawrence Mittman..........................................................................         30,000     
    Isaac Perlmutter..........................................................................      3,980,000  (1)
Associates of any directors, executive officers or nominees...................................           None     
Each other person who received or is to receive 5% of such options............................           None     
All employees, including all current officers who are not executive officers, as a group......      1,868,751     

----------------                                                                                                  
(1)   Figures  include the stock options subject of the Stock Option Issuance to                                  
      purchase  3,950,000  shares of Common  Stock.  The  issuance of such stock                                  
      options is subject to approval of the Plan  Amendment and the Stock Option                                  
      Issuance by the stockholders of the Company. For a complete description of                                  
      the Stock Option Issuance, see "Issuance of the Stock Options" below.                                       


Interest of Certain Persons in Matters to be Acted Upon                         

         The officers and  directors of the Company have an interest in the Plan
Amendment to the extent they are eligible to participate therein.  Additionally,
because  there are  currently  not enough stock  options  available for issuance
under the 1998 Plan to accommodate the Stock Option  Issuance,  the Stock Option
Issuance is  contingent  upon the approval of the Plan  Amendment.  Accordingly,
Isaac  Perlmutter,  the  Company's  largest  stockholder  and a director  of the
Company has an interest in the Plan Amendment. For more information on the Stock
Option Issuance , see "Issuance of the Stock Options" below.                    

ISSUANCE OF THE WARRANTS

Proposal to Approve the Issuance of the Warrants                                

         On November 30, 2001, the Company entered into a warrant agreement (the
"Warrant  Agreement") with Isaac Perlmutter,  the Company's largest  stockholder
and a director of the  Company,  pursuant to which,  if the Warrant  Issuance is
approved,  Mr.  Perlmutter  will have the right to receive five year warrants to
purchase up to a maximum of five  million  shares of Common  Stock at an initial
exercise  price per share equal to $3.11 (the  "Warrants").  For a more complete
summary of the terms of the  Warrants,  see "- Certain  Transaction  Documents -
Warrant Agreement" below.                                                       

         The Company is seeking  stockholder  approval  for the  issuance of the
Warrants in order to comply with the rules of the New York Stock  Exchange,  the
stock market on which the Common Stock is listed.                               

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Under the rules of the New York Stock Exchange,  an issuer whose  securities are
listed on the New York Stock Exchange is required to obtain stockholder approval
prior to the issuance of common stock, or of securities  convertible into common
stock, to a director,  officer or substantial  security holder of such issuer if
the number of shares of common stock to be issued, or if the number of shares of
common stock into which the securities may be converted or exercisable,  exceeds
either one percent of the number of shares of common stock or one percent of the
voting power outstanding before the issuance.  On November 30, 2001, one percent
of the number of shares of Common  Stock was  338,539  shares and one percent of
the  outstanding  voting power of the Company was 535,522  shares,  in each case
before  giving  effect to  either  the  Warrant  Issuance  or the  Stock  Option
Issuance.  As a result,  the Warrant Issuance requires approval of the Company's
Stockholders.                                                                   

         If the stockholders of the Company do not approve the Warrant Issuance,
the Warrants will terminate without becoming  exercisable.  In that event, a fee
of up to $7  million  will  be  paid to Mr.  Perlmutter  in lieu of the  Warrant
Issuance.                                                                       

         The  parties  to the  Voting  Agreement  (see  "-  Certain  Transaction
Documents - Voting  Agreement"  below) have the power to vote, in the aggregate,
approximately  52.6% in voting  power of the  shares of  Capital  Stock and have
agreed to vote their shares of Capital  Stock in favor of the Warrant  Issuance.
Accordingly, a vote in favor of the Warrant Issuance is assured without the vote
of any other holder of Capital Stock.                                           

         The Board of Directors  unanimously  recommends that  stockholders vote
FOR the approval of the Warrant Issuance.                                       

Background of the Proposal                                                      

         Since February 1999,  the Company has had  outstanding  $250 million of
12% Senior Notes due 2009 (the  "Notes").  During the past year,  the Notes have
traded at a  significant  discount  to their face amount  causing the  effective
interest  rate on the Notes to be much  higher  than the  stated  12% rate.  The
Company  considered  that  the  nature  of the toy  business,  particularly  its
seasonal  nature and long lead times in toy  development,  make the toy business
volatile and a difficult  business for a company with  significant  leverage and
high  fixed  interest  costs.  At the same  time,  market  interest  rates  were
declining.  The  combination  of toy business  volatility  and declining  market
interest rates caused the Company to consider the desirability of purchasing the
Notes at the  discount  which  they  traded in the market in order to achieve an
effective interest rate savings.                                                

   In addition to the Notes, the Company had a credit agreement (the
"Credit Agreement") with Citibank, N.A. ("Citibank") which the Company used to  
finance its working capital needs. The ability of the Company to borrow under   
the Credit Agreement was based upon the amount of the Company's receivables and 
inventory. At March 31, 2001, the Company was not in compliance with certain    
covenants contained in the Credit Agreement. On May 14, 2001, the Company       
entered into a waiver agreement with Citibank (the "Waiver Agreement") which    
among other matters waived the covenant failures by the Company, eliminated     
working capital availability and limited the amount of money available for      
letters of credit. In addition, under the terms of the Waiver Agreement the     
Company initially deposited $3 million plus an additional $1 million on the last
day of each month from July through ______, 2001 into a restricted cash account 
to collateralize the outstanding balances under the letters of credit under the 
Credit Agreement. Pursuant to the Waiver Agreement, the Company was also        
required to have deposited an amount equal to 105% of the outstanding letters of
credit by November 30, 2001.                                                    

         The Waiver  Agreement  provided  that if the Company did not deposit an
amount  equal to 105% of the  outstanding  letters of credit by August 14, 2001,
Citibank would engage an appraiser, at the                                      

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Company's  expense,  to  perform  an  appraisal  of the  Company's  intellectual
property.  The Company  anticipated that this appraisal would cost the Company a
significant amount of money.  Also, under the Waiver Agreement,  the Company was
incurring  an  additional  2% letter of credit fee annually on the amount of its
outstanding  letters of credit.  For these  reasons,  and  because  the  Company
recognized  that it  would  have to fully  cash  collateralize  the  outstanding
letters of credit by November 30th,  2001, the Company began  approaching  other
financial  institutions  to attempt to arrange  financing  to replace the Credit
Agreement and obtain additional borrowed funds which could be used to buy back a
portion of the Notes.                                                           

         On July 11, 2001, Mr.  Perlmutter began purchasing Notes in open market
purchases.  From July 11,  2001  through  September  28,  2001,  Mr.  Perlmutter
purchased a total of  approximately  $38 million in principal amount of Notes at
an  average  price  of 53% of the  face  amount  of the  Notes.  Mr.  Perlmutter
purchased those Notes with personal funds.                                      

         The Company,  however,  was not able to obtain financing to replace the
Credit Agreement based upon its inventory or receivables because the Company had
previously  made a strategic  decision to sell its  products on an F.O.B.  basis
eliminating  the need for the Company to take title to its products and reducing
the need for the Company to maintain inventory balances in the United States. In
addition,  the Company's F.O.B.  sales reduced its receivable base. With reduced
inventory and fewer  receivables,  the Company found that it had less collateral
to offer a new lender and therefore  could not find a lender willing to increase
the size of its line of credit.                                                 

         The Company then approached financial institutions to attempt to obtain
financing  based on the Company's  cash flows rather than on its asset base. The
Company was  informed by various  institutions  that such a line of credit would
only be available if the Company were to obtain a guarantee from Mr. Perlmutter.
Mr.  Perlmutter  indicated to the Board of Directors that he would be willing to
provide  such a  guarantee  but  would  require  compensation  for  doing so. In
anticipation  of the  likelihood  that such a guarantee  would be required,  the
Board of Directors  formed a special  committee on June 25, 2001  consisting  of
Shelley Greenhaus, James Halpin, and Sid Ganis, each of whom was perceived to be
an  independent  director  in  any  transaction  between  the  Company  and  Mr.
Perlmutter.                                                                     

         In July, 2001, HSBC Bank USA ("HSBC") and another financial institution
made tentative proposals to the Company for replacement financing. Because these
proposals did not require a personal guarantee from Mr. Perlmutter,  the special
committee was disbanded in early August 2001. The Company continued  discussions
with HSBC,  but  rejected  the  proposal  from the other  financial  institution
because its terms were  significantly  more  expensive to the Company than those
proposed by HSBC.  During  August,  2001 in the course of continued  discussions
with HSBC,  HSBC  informed  the Company that it would in fact require a personal
guarantee from Mr. Perlmutter,  and on September 5, 2001, the Board of Directors
revived the special  committee  for the  purpose of  negotiating  the terms upon
which Mr. Perlmutter would agree to provide such a guarantee.                   

         On _________,  2001, the Company  terminated the Credit  Agreement.  On
August 23,  2001,  the Company  entered  into an  agreement  (the  "Substitution
Agreement")  with  Object  Trading  Corp.,  a  corporation  wholly  owned by Mr.
Perlmutter, pursuant to which Object Trading Corp. agreed to have new letters of
credit  issued to replace  approximately  $12.4  million of the $17.5 million of
letters  of  credit  outstanding  under  the  Credit  Agreement,  along  with an
additional letter of credit for $3.4 million in connection with the appeal of an
adverse litigation decision.  The replacement letters of credit were required to
be  delivered by the Company to licensors  of  intellectual  property  which the
Company uses in the  manufacture of various toys and in connection  with certain
advertising  commitments  relating to the toy business.  In accordance  with the
Substitution Agreement, Object Trading Corp. obtained the replacement letters of
credit from HSBC which,  pursuant  to the terms of the  Substitution  Agreement,
would  remain in effect  until the  earlier of the date the  Company was able to
close a new bank financing                                                      

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on terms  approved by the Board of Directors  or November  30, 2001.  No fee was
payable by the Company to Object Trading Corp. under the Substitution Agreement,
but the Company  agreed  thereunder to reimburse  Object  Trading Corp.  for all
out-of-pocket  costs and expenses  incurred by it in connection with opening and
maintaining  the  replacement  letters  of  credit,  and for the  amount  of any
payments made by Object  Trading Corp. to reimburse HSBC in the event any of the
replacement  letters of credit were drawn upon.  The Company also granted Object
Trading Corp. a first security  interest in the same assets that were granted as
security under the Credit Agreement.                                            

         Also on August 14, 2001, consistent with the Company's goal of reducing
its involvement in the toy business,  the Company  announced that it had entered
into a worldwide  licensing agreement with an unrelated Hong-Kong based company,
Toy Biz  Worldwide,  Ltd.,  for the sale and  manufacture  of action figures and
accessories  that feature the Company's  characters  other than those based upon
the upcoming  Spider-Man  movie. In connection  with granting that license,  the
Company received a license fee of $20 million,  paid in the form of Notes valued
at 50.3% of their face amount.                                                  

         On September 28, 2001, the Company signed a commitment letter with HSBC
to provide the HSBC line of credit which was conditioned upon the bank obtaining
a personal guarantee from Mr. Perlmutter.                                       

         On  November  30,  2001,  the Company  and HSBC  entered  into a credit
agreement  pursuant to which the Company  obtained an $80 million secured credit
facility (the "New Facility") comprised of a revolving letter of credit facility
and a multiple  draw term loan facility that may be used to finance the purchase
of a portion of the Notes.  The New Facility has been  guaranteed  by certain of
the Company's domestic subsidiaries and by Mr. Perlmutter.                      

Certain Transaction Documents                                                   

         In  consideration  of  Mr.  Perlmutter's  guarantee  of  the  Company's
obligations under the New Facility,  the Company and Mr. Perlmutter entered into
(i) the Warrant Agreement,  pursuant to which the Company granted Mr. Perlmutter
warrants to purchase  shares of Common  Stock,  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. In connection with the foregoing,  the Company, Mr.
Perlmutter, and the three other largest stockholders of the Company entered into
a Voting Agreement  pursuant to which Mr. Perlmutter and such other stockholders
agreed,  among other  things,  to vote in favor of the  Warrant  Issuance to Mr.
Perlmutter.  The Company  also agreed to purchase  Notes held by Mr.  Perlmutter
pursuant to a Notes Purchase Agreement.                                         

The Warrant Agreement                                                           

         The following is a summary of the significant provisions of the Warrant
Agreement,  dated as of November 30, 2001,  by and between the Company and Isaac
Perlmutter (the "Warrant Agreement").  This summary is qualified in its entirety
by the terms of the Warrant  Agreement,  a copy of which is  included  with this
proxy statement as Appendix E and incorporated herein by reference.             

         Exercise  Price  and  Number  of  Warrants.   The  Company  is  seeking
stockholder  approval for the issuance of warrants to Mr. Perlmutter pursuant to
the Warrant Agreement and in consideration of (i) Mr. Perlmutter's  guarantee of
the Company's  obligations  under the New Facility,  and (ii) any credit support
that Mr.  Perlmutter may provide for the Company's  obligations  under its lease
for its executive offices (the "Office  Guaranty").  Upon obtaining  stockholder
approval,  Mr. Perlmutter will be issued warrants (the "Warrants") entitling him
to purchase up to five million  (5,000,000)  shares of the Common Stock at a per
share purchase price equal to $3.11,  which was the average closing price of the
Company's  Common Stock over the ten trading days  preceding the issuance of the
Warrants. The maximum number of                                                 

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Warrants that Mr.  Perlmutter  would be allowed to exercise at any point in time
shall be equal to 5,000,000  multiplied by the fraction obtained by dividing (A)
a  number  representing  the sum of (i) the  maximum  amount  guaranteed  by Mr.
Perlmutter of the  Company's  utilization  of the New Facility  prior to May 31,
2003, (ii) $10,000,000,  and (iii) the maximum amount of the Office Guaranty (if
approved by the Company's Board of Directors and not to exceed  $5,000,000),  by
(B)  $30,000,000  (the "Funding  Ratio"),  such fraction not to exceed an amount
equal to 1.                                                                     

         Adjustments to the Exercise Price.  The exercise price of the Warrants,
and the  number of  shares of Common  Stock  purchasable  upon  exercise  of the
Warrants,  will be adjusted if the Company: (i) issues any Common Stock or other
capital stock of the Company in payment of a dividend or other distribution with
respect to its Common Stock,  (ii) subdivides its issued and outstanding  Common
Stock,  (iii)  combines its issued and  outstanding  Common Stock into a smaller
number of shares,  (iv)  reclassifies or converts its Common Stock (other than a
reclassification  in connection with a merger,  consolidation  or other business
combination),  or (v)  distributes to all holders of its Common Stock any of the
Company's assets, debt securities or any options, warrants or rights to purchase
securities.  Specifically, the number of shares of Common Stock purchasable upon
exercise of each Warrant  immediately prior to the record date or effective date
of any such event (the "Event Date") shall be adjusted so that the holder of the
Warrant  shall be  entitled  to receive  the kind and number of shares of Common
Stock after the Event Date which such holder would have been entitled to receive
after the Event Date had such holder exercised the Warrant  immediately prior to
the Event Date.                                                                 

         In the event of a merger,  consolidation or other business  combination
pursuant  to which  consideration  is  payable  to  holders  of Common  Stock in
exchange  for such  stock,  the  Warrants  shall  remain  subject to the Warrant
Agreement and the holder of each Warrant shall, after such consolidation, merger
or business combination, be entitled to receive upon exercise of the Warrant the
number of shares in the  capital  or  property  (including  cash) of or from the
entity  resulting  from,  surviving,  or  purchasing  assets  pursuant  to, such
consolidation,   merger  or   business   combination,   that   would  have  been
distributable  or payable on account of the Common  Stock had the  Warrants  had
been  exercised  immediately  prior to such  merger,  consolidation  or business
combination.  If, however,  such  consideration  consists solely of cash, or the
Company  dissolves,  liquidates,  or winds up,  then the holder of the  Warrants
shall be entitled to receive,  on an equal basis with holders of Common Stock, a
payment  equal to the excess of (i) payments or  distributions  to the holder of
the Warrants had the Warrants been  exercised  immediately  prior to such event,
over (ii) the exercise price of each Warrant.  In the event of any such payment,
the Warrants shall expire.                                                      

         In addition to the adjustments  described above, the Company's Board of
Directors  has the  right  at any time to  decrease  the  exercise  price of the
Warrants  or increase  the number of shares  issuable  upon the  exercise of the
Warrants.                                                                       

         Payment of Exercise  Price.  In order to exercise any of the  Warrants,
payment of the exercise price may be made: (i) in cash, (ii) without the payment
of cash,  by  reducing  the  number  of shares of  Common  Stock  that  would be
obtainable upon the exercise of the Warrant so as to yield a number of shares of
Common Stock upon the  exercise of such Warrant  equal to the product of (a) the
number of shares of Common Stock for which such Warrant would be  exercisable in
cash, multiplied by (b) a fraction,  the numerator of which is the excess of the
average  of the per  share  closing  prices  for such  Common  Stock  for the 20
consecutive days immediately preceding the exercise date over the exercise price
per share as of the exercise date,  and the  denominator of which is the current
market  price  per  share of  Common  Stock  on the  exercise  date,  or (iii) a
combination of (i) and (ii).                                                    

         Transfer Restrictions. Mr. Perlmutter may only transfer Warrants to his
"Affiliates,"  meaning any other  individual  or entity  directly or  indirectly
controlling, controlled by, or under direct or indirect                         

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common control with, Mr. Perlmutter. In the event of such transfers,  Affiliates
of Mr. Perlmutter may subsequently  transfer the Warrants only to Mr. Perlmutter
or another of his Affiliates.                                                   

         Alternative  Provisions  in  the  Event  Stockholder  Approval  is  Not
Obtained.  Although the holders of 52.6% of the voting stock of the Company have
contractually  agreed to vote in favor of the  issuance  of the  Warrants to Mr.
Perlmutter,  the Warrant Agreement provides for alternative provisions to govern
in the event stockholder approval is not obtained. If the Company's stockholders
do not approve the issuance of the Warrants, the Warrants will terminate without
becoming exercisable. In addition, a fee of up to $7 million will be paid to Mr.
Perlmutter ten days after the date that the credit agreement  evidencing the New
Facility  has  terminated.  The  portion of that $7 million  fee  payable to Mr.
Perlmutter would be pro rated based on the Funding Ratio, as described above.   

         Expiration of Warrants; Termination and Amendment of Warrant Agreement.
If not exercised or otherwise  terminated,  the Warrants  expire on November 30,
2006. The Company also has the right to terminate the Warrant  Agreement without
the Warrants  becoming  exercisable if, before December 31, 2001 (i) the Company
receives an unsolicited  proposal for a substitute  guarantee from a third party
on terms  which,  in the good faith  judgment of the Board of  Directors  of the
Company, are more favorable to the Company, (ii) Mr. Perlmutter is released from
liability  on his guaranty to HSBC Bank USA, and (iii) the Company has given Mr.
Perlmutter at least two days notice of such unsolicited guaranty.               

The Warrant Shares Registration Rights Agreement                                

         The following is a summary of the significant provisions of the Warrant
Shares  Registration  Rights  Agreement,  dated as of November 30, 2001,  by and
between the Company  and Isaac  Perlmutter  (the  "Warrant  Registration  Rights
Agreement").                                                                    

         Piggyback  Rights.  Pursuant to the terms of the  Warrant  Registration
Rights Agreement,  if the Company proposes to file a registration statement with
the United States Securities and Exchange  Commission  respecting an offering in
which  securities  are  sold to  underwriters  on a firm  commitment  basis  for
reoffering to the public (an "Underwritten  Offering"),  then the holders of the
Warrants  shall have the right to request  the  inclusion  in such  registration
statement of the shares of Common Stock underlying such Warrants (the "Piggyback
Rights").                                                                       

         Shelf Registration Rights. The Company is obligated to use commercially
reasonable  efforts  (i) to cause to be filed  pursuant  to Rule 415  under  the
Securities Act of 1933, as amended, a shelf registration  statement covering the
resale of the shares of Common Stock underlying the Warrants,  and (ii) to cause
such shelf  registration  statement to become effective under the Securities Act
within six months and two weeks after November 30, 2001. Once such  registration
statement  has become  effected,  the Company is obligated  to use  commercially
reasonable  efforts  to keep it  continuously  effective  until such time as all
Warrants have been exercised or have expired.                                   

         Other  Company   Obligations.   The  Company  has  agreed  to  standard
indemnifications  of each beneficial  owner of Warrants or any Affiliate of such
beneficial owner. The Company has agreed to bear all of the expenses relating to
the  Company's  performance  of or  compliance  with its  obligations  under the
Warrant  Registration  Rights  Agreement,  except for Mr.  Perlmutter's or other
holders' (i) share of  underwriting  discounts and commissions and (ii) fees and
disbursements,  including legal fees. The Company has agreed not to purchase and
then resell or otherwise  transfer any Warrants other than Warrants acquired and
cancelled.                                                                      

Credit Agreement                                                                

         The following is a summary of the significant  provisions of the Credit
Agreement.                                                                      

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         Under the terms of the Credit  Agreement,  the Company  obtained an $80
million  secured  credit  facility  (the "New  Facility").  The New  Facility is
comprised of: (a) a $20 million  revolving  letter of credit facility  renewable
annually for up to three years;  and (b) a $60 million  multiple draw three year
amortizing  term loan facility  available  until January 31, 2002. The term loan
portion of the New  Facility may be used to finance the purchase of a portion of
the  Company's  Notes.  Under the terms of that certain  Indenture,  dated as of
February 25, 1999,  defining the rights of holders of 12% senior notes due 2009,
the Company is restricted from incurring  indebtedness in excess of $70 million.
As a result,  the Company cannot utilize the New Facility to borrow in excess of
$70 million at any given time.                                                  

         The term loan facility  amortizes  quarterly  over three years with the
outstanding  principal  due and payable on  September  30,  2004.  The letter of
credit facility is a one-year  facility  subject to annual renewal,  expiring on
the date which is five days prior to the final  maturity  date for the term loan
facility.  At the option of the Company,  the term loans bear interest either at
the lender's  base rate plus a margin of 2.5% or the lender's  reserve  adjusted
LIBOR rate plus a margin of 3.5%. The Company may prepay the term loans applying
the base rate at any time  without  penalty,  but may only prepay the LIBOR rate
loans without  penalty at the end of the  applicable  interest  period.  The New
Facility contains customary  mandatory  prepayment  provisions for facilities of
this nature, including an excess cash flow sweep.                               

         The New Facility  contains  customary  event of default  provisions and
covenants  restricting the Company's  operations and  activities,  including the
amount of capital expenditures,  and also contains certain covenants relating to
the  maintenance  of  minimum  net  worth and a minimum  interest  coverage  and
leverage ratio.                                                                 

         The New Facility is secured by: (i) a first priority  perfected lien in
all of the assets of the Company;  (ii) a first  priority  perfected lien in all
the capital stock of each of the Company's domestic subsidiaries;  (iii) a first
priority  perfected  lien in 65% of the capital  stock of each of the  Company's
foreign  subsidiaries;  and (vi) cash  collateral to be placed in a cash reserve
account in an amount  equal to at least $10  million  at the end of each  fiscal
quarter.                                                                        

Guaranty And Security Agreement                                                 

         The  following  is a  summary  of  the  significant  provisions  of the
Guaranty (the "Guaranty") and the Security Agreement (the "Security Agreement"),
each dated as of  November  30,  2001,  by and  between  the  Company  and Isaac
Perlmutter.                                                                     

         Under the terms of the Guaranty,  Mr.  Perlmutter  has  guaranteed  the
payment of the Company's  obligations  under the New Facility in an amount equal
to 25% of all principal obligations relating to the New Facility plus an amount,
not to exceed $10 million,  equal to the difference  between the amount required
to be in the cash  reserve  account  maintained  by the  Company  and the actual
amount  on  deposit  in such  cash  reserve  account  at the end of each  fiscal
quarter;  provided that the aggregate amount  guaranteed by Mr.  Perlmutter will
not exceed $30 million.                                                         

         Pursuant to the Security  Agreement,  Mr.  Perlmutter  has provided the
creditors under the Credit  Agreement with a security  interest in the following
types of property,  whether currently owned or subsequently acquired by him: all
promissory notes,  certificates of deposit,  deposit accounts,  checks and other
instruments,  and all insurance or similar payments or any indemnity  payable by
reason of loss or damage to or otherwise with respect to any such property.     

Voting Agreement                                                                

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         The following is a summary of the significant  provisions of the voting
agreement,  dated as of November 30, 2001 by and between the Company each of Avi
Arad,  Isaac  Perlmutter,  Morgan Stanley & Co.  Incorporated,  and Whippoorwill
Associates,  Incorporated, as agent and/or general partner for its discretionary
accounts  (the  "Stockholders")  (the  "Voting  Agreement").   This  summary  is
qualified  in its  entirety by the terms of the Voting  Agreement,  incorporated
herein by reference to Exhibit 10.8 of the Company's Current Report of Form 8-K,
filed with the Securities and Exchange Commission on December 4, 2001.          

         Under the terms of the Voting Agreement, the Company has agreed to hold
a meeting of  stockholders  for the purpose of approving (i) the issuance of the
Warrants to Mr.  Perlmutter,  (ii) the Stock Option  Issuance to Mr.  Perlmutter
(see "Issuance of the Stock Options -- Certain  Transaction  Documents," below),
and (iii) the adoption of the Plan Amendment.  The  Stockholders  have agreed to
vote their shares in favor of those  proposals.  The  Stockholders  have "voting
power" (as such term is used in Rule 13d-3 of the General Rules and  Regulations
Under the Securities  Exchange Act of 1934, as amended) with respect to 52.6% of
the Company's combined outstanding Common Stock and 8% Preferred Stock.         

Notes Purchase Agreement                                                        

         The following is a summary of the  significant  provisions of the Notes
Purchase  Agreement,  dated as of November 30, 2001,  by and between the Company
and Isaac Perlmutter (the "Notes Purchase Agreement"). This summary is qualified
in its  entirety  by the terms of the  Notes  Purchase  Agreement,  incorporated
herein by reference to Exhibit  10.10 of the  Company's  Current  Report of Form
8-K, filed with the Securities and Exchange Commission on December 4, 2001.     

         Pursuant  to the Notes  Purchase  Agreement,  the Company has agreed to
purchase  12% Senior  Notes of the  Company due 2009  having an  aggregate  face
amount  of  $42,968,000  (the  "Notes")  from Mr.  Perlmutter.  Notes  which Mr.
Perlmutter  purchased  at the time of the  Company's  original  issuance of such
notes, for which Mr. Perlmutter paid the full face amount,  will be purchased by
the Company for 53% of their face amount. The purchase price for the Notes which
Mr. Perlmutter  purchased since the time of the Company's original issuance will
be Mr. Perlmutter's purchase price for those Notes (which averages approximately
53% of the face  amount  of those  notes)  plus 7% per year from the date of his
purchase  of those  Notes.  Any  interest  received  by Mr.  Perlmutter  on such
additional Notes will be credited against the purchase price of those notes. The
closing of the Notes  Purchase  Agreement will take place no later than December
31, 2001.                                                                       

Reasons for the Transaction                                                     

         As discussed in "- Background of the Proposal"  above,  since  February
1999, the Company has had outstanding $250 million Notes.  During the past year,
the Notes have traded at a significant discount to their face amount causing the
effective interest rate on the Notes to be much higher than the stated 12% rate.
The combination of toy business  volatility and declining  market interest rates
caused the Company to consider the  desirability  of purchasing the Notes at the
discount  which  they  traded in the  market in order to  achieve  an  effective
interest rate savings.                                                          

         Also as discussed in "- Background of the Proposal"  above, the Company
desired to terminate  the Credit  Agreement in order to avoid  certain  expenses
thereunder.   The  Substitution  Agreement,   which  provided  the  Company  the
replacement letters of credit, was scheduled to terminate in accordance with its
terms no later than November 30, 2001.                                          

         The New Facility provides the Company with a revolving letter of credit
facility  in order to replace  the  letters  of credit  issued  pursuant  to the
Substitution Agreement. In addition, the New Facility                           

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allowed  the  Company to  purchase  approximately  $43 million in face amount of
Notes for approximately $24.5 million under the Notes Purchase Agreement.  Those
Notes have an effective  pre-tax  interest cost to the Company of  approximately
21% while the funds  borrowed  under the New Facility  with which they are to be
purchased bore an interest rate on December 28, 2001 of __%.                    

Anti-Takeover Effects of the Proposal                                           

         If the Warrant  Issuance is approved and the maximum number of Warrants
issuable to Mr. Perlmutter pursuant to the Warrant Agreement are issued and such
Warrants are exercised for shares of Common Stock, Mr. Perlmutter's voting power
in the  Company  will  increase  from  __% to  __%.  Additionally,  if the  Plan
Amendment  and the Stock  Option  Issuance  (see  "Amendment  to the 1998  Stock
Incentive Plan" above and "Issuance of the Stock Options"  below,  respectively)
are approved by the stockholders of the Company,  and Mr.  Perlmutter  exercises
the Stock Options for restricted Common Stock, Mr.  Perlmutter's voting power in
the Company will further increase to __%. This may have the effect of preventing
stockholders from realizing an opportunity to sell their shares of Capital Stock
at higher than market  prices by  deterring  unfriendly  tender  offers or other
efforts to obtain control of the Company. In addition,  the Warrant Issuance may
have the effect of  entrenching  the Board of Directors  and  management  of the
Company.                                                                        

         Although  Mr.   Perlmutter  and  the  Company's   three  other  largest
stockholders  (holding  collectively  52.6% of the voting power of the Company's
Capital  Stock) are parties to the  Stockholders'  Agreement ) (see "Election of
Directors  -  Compensation  Committee  Interlocks  and Insider  Participation  -
Stockholders'  Agreement"  below) under which the  Investor  Group (of which Mr.
Perlmutter  is a member) has the right to designate  six members of the board of
directors,  shares  of  Capital  Stock  sold  by  parties  to the  Stockholders'
Agreement to  purchasers  who are not  affiliates  of such parties are no longer
bound by that agreement. As a result, if through sales of Capital Stock by those
parties, the shares of Capital Stock bound by that agreement were to become less
than the majority of the shares of Capital  Stock  outstanding,  it would become
possible  for  stockholders  to replace a majority of  directors on the Board of
Directors  through a proxy  fight.  The Warrant  Issuance may have the effect of
discouraging  such a proxy fight or making it more  difficult to  accomplish  by
increasing  the number of shares of Capital Stock  subject to the  Stockholders'
Agreement.                                                                      

 ISSUANCE OF THE STOCK OPTIONS

Proposal to Approve the Issuance of the Stock Options                           

         On November 30, 2001, the Company entered into an employment  agreement
(the  "Employment   Agreement")  with  Mr.  Perlmutter  pursuant  to  which  Mr.
Perlmutter  will be employed for a six-year term as the Company's  Vice Chairman
of the Board of  Directors.  If the  Stock  Option  Issuance  is  approved,  Mr.
Perlmutter  will receive as compensation  for his services,  among other things,
options to purchase  3,950,000  shares of Common Stock at an exercise  price per
share equal to $3.30 ("Stock Options")  pursuant to a nonqualified  stock option
agreement (the "Nonqualified Stock Option Agreement") under the 1998 Plan. For a
more complete summary of the terms of the Employment  Agreement,  see "- Certain
Transaction Documents - Employment Agreement" below. For a more complete summary
of the  terms of the Stock  Options,  see "-  Certain  Transaction  Documents  -
Nonqualified Stock Option Agreement" below.                                     

         Stockholder  approval of the Stock  Option  Issuance is not required by
the 1998 Plan, the rules of the New York Stock Exchange, or otherwise. The Board
of  Directors  is  submitting  the Stock  Option  Issuance to  stockholders  for
approval as a matter of what it considers to be good corporate practice.  If the
stockholders  fail to approve the Stock Option  Issuance or the Plan  Amendment,
which is required to accommodate  the Stock Option  Issuance,  Mr.  Perlmutter's
base salary  under the  Employment  Agreement                                   

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will be  increased  to  $450,000  per year and he will be  eligible to receive a
target  annual  bonus of up to $250,000.  In  addition,  the number of shares of
Common Stock which Mr. Perlmutter may purchase pursuant to stock options will be
reduced to 150,000 shares and he will be entitled to receive  additional  grants
of 150,000 options each year during the term of his  employment,  subject to any
stockholder approval that may be required.                                      

         The  parties  to the  Voting  Agreement  (see  "-  Certain  Transaction
Documents - Voting  Agreement"  above) have the power to vote, in the aggregate,
approximately  52.6% in voting  power of the  shares of  Capital  Stock and have
agreed to vote their shares of Capital Stock in favor of the Plan  Amendment and
the Stock Option  Issuance.  Accordingly,  a vote in favor of the Plan Amendment
and Stock  Option  Issuance is assured  without the vote of any other  holder of
Capital Stock.                                                                  

         The Board of Directors  unanimously  recommends that  stockholders vote
FOR the approval of the Stock Option Issuance.                                  

Certain Transaction Documents                                                   

         In  consideration  of  Mr.  Perlmutter's  guarantee  of  the  Company's
obligations under the New Facility,  the Company and Mr. Perlmutter entered into
(i) the Employment Agreement,  pursuant to which Mr. Perlmutter will be employed
for a six-year  term as the  Company's  Vice Chairman of the Board of Directors,
and (ii) the Nonqualified Stock Option Agreement,  pursuant to which the Company
granted Mr. Perlmutter options to purchase shares of Common Stock. In connection
with the foregoing,  the Company,  Mr.  Perlmutter,  and the three other largest
stockholders  of the Company entered into a Voting  Agreement  pursuant to which
Mr. Perlmutter and such other stockholders  agreed,  among other things, to vote
in favor of the Stock Option  Issuance to Mr.  Perlmutter  (see "Issuance of the
Warrants - Certain Transaction Documents - Voting Agreement" above).            

Employment Agreement                                                            

         The  following  is a  summary  of  the  significant  provisions  of the
Employment Agreement,  dated as of November 30, 2001, by and between the Company
and Isaac Perlmutter (the "Employment Agreement").  This summary is qualified in
its entirety by the terms of the Employment  Agreement,  incorporated  herein by
reference to Exhibit 10.6 of the  Company's  Current  Report of Form 8-K,  filed
with the Securities and Exchange Commission on December 4, 2001.                

         Duties.  Under the terms of the Employment  Agreement,  Mr.  Perlmutter
will be employed for a six-year term as the Company's Vice-Chairman of the Board
of  Directors,  reporting to the Board of Directors and Chairman of the Company.
Mr.  Perlmutter's  duties shall  relate to  formulation  of  long-term  business
strategy and near term operations, including licensing activities; the Company's
assistance  with  negotiations  with motion  picture and  television  producers,
amusement and theme parks,  and video game and toy  manufacturers;  toy business
marketing;  sale of distressed  products and relationships  with major retailers
including  Toys R Us, K-B Toys,  Wal-Mart  and K-Mart;  litigation  strategy and
tactics;  and cost control.  Mr.  Perlmutter's  duties shall be performed at the
direction and under the  supervision  of the Board of Directors and Chairman and
may  include  additional  or  different  duties  assigned to him by the Board of
Directors  and  Chairman  consistent  with the  foregoing  and his  position  as
Vice-Chairman of the Board of Directors.                                        

         Compensation.  Mr.  Perlmutter  will be  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. The Company
is also seeking  stockholder  approval for an  amendment to the  Company's  1998
Stock  Incentive Plan to increase the number of shares  issuable under such Plan
(the  "Plan  Amendment"),  and  to  subsequently  issue  stock  options  to  Mr.

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requisite stockholder approval is obtained, Mr. Perlmutter will also receive, as
compensation  for his  services,  options to  purchase  3,950,000  shares of the
Company's  Common  Stock at an  exercise  price  per share  equal to $3.30  (the
"Options").  The provisions of the stock option  agreement  governing the rights
and  obligations  of the Company and Mr.  Perlmutter  with  respect  thereto are
described in further  detail in the section below entitled  "Nonstatutory  Stock
Option Agreement."                                                              

         Confidentiality,  Non-competition,  Non-solicitation,  and Intellectual
Property   Rights.   The   Employment   Agreement   requires  to  maintain   the
confidentiality  of all  confidential  matters of the Company,  including  "know
how", trade secrets,  customer lists,  pricing  policies,  operational  methods,
technical processes, formulae, inventions, research projects, and other business
affairs of the Company.                                                         

         The Employment  Agreement  prohibits Mr. Perlmutter from competing with
the Company and from  soliciting  employees,  customers,  vendors or others with
whom the Company has  business  relationships,  in each case for 18 months after
the  date  his  employment  terminates  for any  reason.  In  addition  to other
remedies,  Mr. Perlmutter will be required to pay over to the Company any profit
that  he  has  made  from  the  exercise  of  the  Options  if he  breaches  his
confidentiality,  non-compete or non-solicitation  obligations in the Employment
Agreement.                                                                      

         Early Termination.  The Employment  Agreement will terminate early upon
the death of Mr. Perlmutter or, at the option of the Company,  if Mr. Perlmutter
is unable to perform his  principal  duties for (i) a period of six  consecutive
months or (ii) for  shorter  periods  aggregating  six months  during any twelve
month period.                                                                   

         The Employment  Agreement may be terminated by the Company for "Cause,"
defined as the occurrence of any of the following:  (i) Mr. Perlmutter's willful
and  intentional  failure or refusal to perform or observe  any of his  material
duties;  provided,  however,  that the Company first gives him written notice of
the specified conduct, an opportunity to appear before the Board of Directors to
discuss the  alleged  conduct,  and an  opportunity  to cure the conduct  within
thirty (30) days after his receipt of such notice; (ii) Mr. Perlmutter's willful
and  material  breach by the  Executive  of any of his  obligations  relating to
confidentiality,  non-competition,  non-solicitation,  and intellectual property
rights;  (iii) Mr.  Perlmutter's  willful and intentional  act involving  fraud,
theft,  misappropriation  of funds,  embezzlement  or material  dishonesty  that
affects the Company, or his willful misconduct which has, or could reasonably be
expected  to  have,  a  material  adverse  effect  on the  Company;  or (iv) Mr.
Perlmutter's  conviction  of, or plea of guilty or nolo contendre to, an offense
which is a felony in the jurisdiction involved.                                 

         The Employment  Agreement may be terminated by Mr.  Perlmutter upon his
delivery  of notice to the  Company  of any event  constituting  "Good  Reason,"
defined as the  occurrence of any of the  following:  (i) the  assignment of Mr.
Perlmutter  to duties  materially  inconsistent  with his  position as otherwise
described in the  Employment  Agreement  or any  significant  diminution  in his
duties or  responsibilities,  other than in connection  with  termination of his
employment  by  reason  of  disability,  by the  Company  for  Cause,  or by Mr.
Perlmutter other than for Good Reason;  or (ii) the breach by the Company of its
obligation  to provide Mr.  Perlmutter  with the  compensation  specified in the
Employment  Agreement  or any  other  material  breach by the  Company  which is
continuing;  provided,  however,  that in either case Mr.  Perlmutter must first
give the Company written notice that the specified conduct or event has occurred
and the  opportunity  to cure such conduct or event  within  thirty (30) days of
receipt of such notice.  The Employment  Agreement may also be terminated by Mr.
Perlmutter at any time with at least sixty (60) days prior written notice.      

         Severance.  If Mr. Perlmutter's employment is terminated upon his death
or  disability,  by the Company for Cause,  or by Mr.  Perlmutter  without  Good
Reason,  Mr. Perlmutter shall be entitled to receive his base salary,  bonus and
any additional benefits up to the date on which such termination shall          

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take effect. If Mr. Perlmutter terminates his own employment for Good Reason, he
shall also be entitled to receive a pro rata portion of his annual bonus for the
year in which the termination date occurs.                                      

         Alternative  Provisions  in  the  Event  Stockholder  Approval  is  Not
Obtained.  Although the holders of 52.6% of the voting stock of the Company have
contractually  agreed to vote in favor of the Plan Amendment and the issuance of
the Options to Mr. Perlmutter, the Employment Agreement provides for alternative
provisions to govern in the event stockholder  approval is not obtained.  If the
Company's  stockholders  do not approve the Plan  Amendment  or the grant of the
Options, Mr. Perlmutter's base salary will be increased to $450,000 per year and
he will be  eligible  to receive a target  annual  bonus of up to  $250,000.  In
addition,  the  number  of  shares  of the  Company's  Common  Stock  which  Mr.
Perlmutter  may  purchase  pursuant to stock  options will be reduced to 150,000
shares and he will be entitled to receive  additional  grants of 150,000 options
each year during the term of his employment,  subject to any further stockholder
approval that may be required.                                                  

Nonqualified Stock Option Agreement                                             

         The  following  is a  summary  of  the  significant  provisions  of the
Nonqualified  Stock  Option  Agreement,  dated as of  November  30,  2001 by and
between the Company and Isaac  Perlmutter (the "Stock Option  Agreement").  This
summary is qualified in its entirety by the terms of the Stock Option Agreement,
a copy of  which is  included  with  this  proxy  statement  as  Appendix F  and
incorporated herein by reference.                                               

         If the requisite stockholder approval is obtained,  Mr. Perlmutter will
receive,  among  other  things,  options  to  purchase  3,950,000  shares of the
Company's  Common  Stock at an  exercise  price  per share  equal to $3.30  (the
"Options"),  governed  by  such  terms  as are  contained  in the  Stock  Option
Agreement.  The Options  will be  exercisable  at any time prior to November 30,
2007,  but the shares of stock  issuable  on  exercise  of the  Options  will be
"restricted  shares," subject to repurchase by the Company at the exercise price
paid by Mr. Perlmutter and non-transferable until vesting requirements have been
met.  The vesting  arrangements  provide for all of the shares to be  restricted
shares until the fourth anniversary of the Option grant date and then to vest in
one-third  increments on the fourth,  fifth and sixth anniversaries of the grant
date.                                                                           

         If Mr. Perlmutter's employment is terminated at any time by the Company
without  Cause,  or by Mr.  Perlmutter for Good Reason,  the shares  issuable on
exercise  of the Option  will vest in an amount  equal to the greater of (i) one
third of the Options, or (ii) the amount of Options pro rated on a monthly basis
through  the date of  termination.  In the  event of Mr.  Perlmutter's  death or
disability, the shares issuable on exercise of the Option will vest in an amount
equal the amount of Options  pro rated on a monthly  basis  through  the date of
termination.  If Mr.  Perlmutter's  employment  is terminated by the Company for
Cause,  or by Mr.  Perlmutter  for other than Good  Reason,  the  Options  shall
thereafter  cease  to be  exerciseable.  The  vesting  restrictions  will  fully
accelerate in the event of a change in control of the Company  during the period
of Mr.  Perlmutter's  employment.  Unvested  Options,  to  the  extent  not  yet
exercised,  will be subject  to  forfeiture  in  accordance  with these  vesting
arrangements.                                                                   

Reasons for the Transaction                                                     

         Since  the  Company's  formation,  Mr.  Perlmutter  has  been  actively
involved in the affairs of the Company and has devoted a  significant  amount of
his business time to the activities of the Company.  Although he has received no
compensation  for  doing so and  there  has  been no  consulting  or  employment
agreement  between the Company and Mr.  Perlmutter,  the Company has  recognized
that the loss of the services of Mr.  Perlmutter could have an adverse effect on
the Company.  The employment  agreement  obligates Mr.  Perlmutter to employment
with the Company for the next six years and  requires Mr.  Perlmutter  to devote
substantially all of his business time to the Company.                          

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         The  Board of  Directors  believes  that  entering  into an  employment
agreement  with the Company  reduces a risk faced by the Company by assuring the
continued  availability  of Mr.  Perlmutter's  services  and the  risk  that Mr.
Perlmutter might enter into businesses competitive with those of the Company.   

         For information  leading up to the Company's decision to enter into the
Employment  Agreement with Mr.  Perlmutter and the issuance of the Stock Options
to Mr.  Perlmutter,  see also  "Issuance  of the  Warrants -  Background  of the
Proposal" above.                                                                

Anti-Takeover Effects of the Proposal                                           

         If the Plan Amendment (see "Amendment to the 1998 Stock Incentive Plan"
above) and the Stock Option  Issuance are  approved by the  stockholders  of the
Company,  and Mr.  Perlmutter  exercises the Stock Options for restricted Common
Stock,  Mr.  Perlmutter's  voting power in the Company will increase from __% to
__%.  Additionally,  if the Warrant  Issuance is approved (see  "Issuance of the
Warrants" above),  and the maximum number of Warrants issuable to Mr. Perlmutter
pursuant to the Warrant Agreement are issued and such Warrants are exercised for
shares of Common  Stock,  Mr.  Perlmutter's  voting  power in the  Company  will
further  increase to __%.  This may have the effect of  preventing  stockholders
from  realizing an  opportunity  to sell their shares of Capital Stock at higher
than market  prices by deterring  unfriendly  tender  offers or other efforts to
obtain control of the Company.  In addition,  the Stock Option Issuance may have
the effect of entrenching the Board of Directors and management of the Company. 

         Although  Mr.   Perlmutter  and  the  Company's   three  other  largest
stockholders  (holding  collectively  52.6%  of the  stock of the  Company)  are
parties  to  the  Stockholders'  Agreement  )  (see  "Election  of  Directors  -
Compensation  Committee  Interlocks and Insider  Participation  -  Stockholders'
Agreement"  below) under which the Investor Group (of which Mr.  Perlmutter is a
member) has the right to designate six members of the board of directors, shares
of Capital  Stock sold by parties of the  Stockholders'  Agreement to purchasers
who are not affiliates of such parties are no longer bound by that agreement. As
a result,  if through  sales of Capital  Stock by those  parties,  the shares of
Capital Stock bound by that  agreement  were to become less than the majority of
the  shares  of  Capital  Stock  outstanding,   it  would  become  possible  for
stockholders  to  replace a  majority  of  directors  on the Board of  Directors
through  a proxy  fight.  The  Stock  Option  Issuance  may have the  effect  of
discouraging  such a proxy fight or making it more  difficult to  accomplish  by
increasing  the number of shares of Capital Stock  subject to the  Stockholders'
Agreement.                                                                      

 ELECTION OF DIRECTORS

         Eight  directors  will be elected at the Annual  Meeting to serve until
the  election  and  qualification  of their  respective  successors.  All of the
nominees are  currently  members of the Board of Directors.  Fewer  nominees are
named than the  number  provided  for in the  Company's  governing  instruments,
because Michael J. Petrick resigned as a director of the Company on November __,
2001 and the  Directors  have not yet elected a director to replace  him.  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 all of the nominees are
willing to serve as directors 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.       

         The parties to the  Stockholders'  Agreement have the power to vote, in
the  aggregate,  approximately  [55.8%] in voting power of the shares of Capital
Stock and have agreed to vote their shares                                      

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of Capital  Stock in favor of the  election to the Board of Directors of each of
the eight nominees  identified in this proxy statement.  Accordingly,  a vote in
favor of the  election  to the Board of  Directors  of each of the  nominees  is
assured without the vote of any other holder of Capital Stock.                  

         Pursuant to the By-Laws, the election to the Board of Directors of each
of the eight  nominees  identified  in this proxy  statement  will  require  the
affirmative  vote of the holders of a plurality  of the shares of Capital  Stock
present in person or  represented by proxy at the Annual Meeting and entitled to
vote.  In  tabulating  the  vote,  abstentions  and  broker  non-votes  will  be
disregarded  and will have no effect on the  outcome  of the vote.  The Board of
Directors unanimously  recommends that stockholders vote FOR the election to the
Board of Directors of each of the eight nominees identified below.              

Nominees for Election as Directors                                              

         The name,  age as of December __, 2001,  principal  occupation  for the
last five years,  selected  biographical  information and period of service as a
director of the Company of each of the  nominees  for election as a director are
set forth below.  "MEG"  refers to Marvel  Entertainment  Group Inc.,  which the
Company acquired by means of a merger on October 1, 1998. "Toy Biz, Inc." refers
to the Company before its acquisition of MEG.                                   

         Morton E. Handel (Class III),  [66],  has been Chairman of the Board of
Directors  of the  Company  since  October  1998 and was  first  appointed  as a
director of Toy Biz,  Inc. in June 1997.  Mr.  Handel has been  President of S&H
Consulting Ltd., a financial  consulting group,  since 1990. Mr. Handel has also
held the position of Director and President of Ranger Industries, Inc. from July
1997 until February 2001. Mr. Handel serves as a director of Concurrent Computer
Corp. and Linens `N Things, Inc.                                                

         Avi Arad  (Class  II),  [53],  has been Chief  Creative  Officer of the
Company  and  President  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.  From April 1993 through  September 1998, Mr. Arad
served  as a  consultant  to Toy Biz,  Inc.  Mr.  Arad was  President  and Chief
Executive  Officer of New World  Animation,  a media  production  company  under
common  control with MEG, from April 1993 until  February 1997 and held the same
position at the Marvel Studios division of MEG from February 1997 until November
1997. At New World Animation and MEG's Marvel Studios division,  Mr. Arad served
as Executive  Producer of the X-Men and the Spider-Man  animated TV series.  Mr.
Arad has been a toy  inventor  and designer for more than 20 years for major toy
companies  including  Mattel Inc.,  Hasbro,  Inc. and Tyco Toys, Inc. During his
career,  Mr. Arad has designed or  co-designed  more than 160 toys.  Mr. Arad is
also the owner of Avi Arad & Associates ("Arad  Associates"),  a firm engaged in
the  design and  development  of toys and the  production  and  distribution  of
television programs.                                                            

         F. Peter Cuneo (Class III), [57], has been the Company's  President and
Chief  Executive  Officer since July 1999.  Mr. Cuneo has been a director of the
Company since July 1999.  From  September 1998 until July 1999, Mr. Cuneo served
as Managing  Director of Cortec Group Inc., a private equity fund. From February
1997 until  September  1998,  Mr. Cuneo was Chairman of Cuneo & Co.,  L.L.C.,  a
private  investment  firm.  From May 1996 until  February  1997,  Mr.  Cuneo was
President, Chief Executive Officer and a director of Remington Products Company,
L.L.C., a manufacturer  and marketer of personal care appliances;  from May 1993
until May 1996, Mr. Cuneo was President and Chief Operating Officer at Remington
Products  Company,  the predecessor to Remington  Products  Company,  L.L.C. Mr.
Cuneo is also a director of Waterpik Technologies, Inc.                         

         Sid Ganis  (Class I),  [61],  has been a director of the Company  since
October 1999.  Mr. Ganis has been  President of Out of  Blue...Entertainment,  a
provider  of motion  pictures,  television  and musical  entertainment  for Sony
Pictures  Entertainment  and others that he founded,  since September 1996. From

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January 1991 until  September 1996, Mr. Ganis held various  executive  positions
with Sony Pictures,  including Vice Chairman of Columbia  Pictures and President
of Worldwide Marketing for Columbia/TriStar Motion Picture Companies.           

         Shelley F.  Greenhaus  (Class  II),  [47],  has been a director  of the
Company  since  October  1998.  Mr.  Greenhaus  has been  President and Managing
Director  of  Whippoorwill   Associates,   Incorporated   ("Whippoorwill"),   an
investment  management firm that he founded,  since 1990.  Whippoorwill  manages
investment  accounts  for a  prominent  group of  institutional  and  individual
investors from around the world.                                                

         James F.  Halpin  (Class I),  [50],  has been a director of the Company
since March 1995. Mr. Halpin retired in March 2000 as President, Chief Executive
Officer and Chief  Operating  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  also a  director  of  Interphase
Corporation,  a  manufacturer  of  high-performance   networking  equipment  for
computers, and Lowe's Companies, Inc., a chain of home improvement stores.      

         Lawrence  Mittman  (Class II), [50], has been a director of the Company
since October 1998. Mr. Mittman is a partner in the law firm of Paul,  Hastings,
Janofsky & Walker  LLP.  For more than the past five  years,  Mr.  Mittman was a
partner in the law firm of Battle Fowler LLP which combined with Paul, Hastings,
Janofsky & Walker in June 2000.                                                 

         Isaac Perlmutter  (Class III), [58], 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 Toy Biz, Inc.'s predecessor  company from Charan
Industries,  Inc. in January 1990.  Mr.  Perlmutter is actively  involved in the
management of the affairs of the Company and has been an  independent  financial
investor  for more than the past five years.  As an  independent  investor,  Mr.
Perlmutter  currently  has, or has had within the past five  years,  controlling
ownership  interests in Ranger  Industries,  Inc.,  Remington  Products Company,
Westwood  Industries,  Inc., a manufacturer  and  distributor of table and floor
lamps, and Tangible Media, Inc., a media buying and advertising agency.         

         All of the Company's directors were designated for election pursuant to
the Stockholders'  Agreement.  Messrs.  Handel, Arad, Cuneo, Halpin, Mittman and
Perlmutter were designated by the Investor  Group.  Messrs.  Ganis and Greenhaus
were designated by the Lender Group.                                            

Meetings  of the  Board,  of its Audit  Committee  and of its  Compensation  and
Nominating Committee                                                            

         The Board of Directors held five meetings  during 2000.  Each incumbent
director  attended at least 75% of the aggregate number of meetings of the Board
of  Directors  (held  during the period of his  directorship)  and  meetings  of
committees  of the Board of Directors on which he served (held during the period
of his  service),  except  for Mr.  Halpin  who  attended  fewer than 75% of the
aggregate number of meetings of the Board of Directors.                         

         Among the Board of Directors'  committees are an Audit  Committee and a
Compensation and Nominating Committee.                                          

         The Audit  Committee is comprised of Messrs.  Greenhaus and Handel and,
until  his  resignation  from the Board of  Directors,  Mr.  Petrick.  The Audit
Committee's function is (i) to review the professional services and independence
of the Company's independent auditors and the scope of the annual external audit
as recommended by the independent auditors, (ii) to ensure that the scope of the
annual external audit by the independent auditors of the Company is sufficiently
comprehensive,  (iii) to review, in consultation  with the independent  auditors
and the internal auditors, the plan for and results of                          

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the annual  external  audit,  the  adequacy of the  Company's  internal  control
systems and the results of the Company's internal audits,  (iv) to review,  with
management  and  the  independent  auditors,   the  Company's  annual  financial
statements,  financial  reporting  practices  and the  results of each  external
audit,  and (v) to  consider  the  qualification  of the  Company's  independent
auditors to make recommendations to the Board of Directors as to their selection
and to review the relationship between such independent auditors and management.
The Audit Committee met three times in 2000.                                    

         The  Compensation  and  Nominating  Committee  is  comprised of Messrs.
Halpin,   Handel,   Ganis  and  Perlmutter.   The  Compensation  and  Nominating
Committee's  function is (i) to review and  recommend  to the Board of Directors
the compensation and benefit arrangements for the officers of the Company,  (ii)
to administer the stock option plans and executive  compensation programs of the
Company,  including  bonus and  incentive  plans  applicable to officers and key
employees  of the  Company,  and (iii) to  recommend  to the Board of  Directors
nominees for election as directors.  Stockholders  may also make nominations for
election as  directors,  provided that such  nominations  are made in accordance
with the provisions of the By-Laws.  See "Stockholder  Proposals"  below, and "-
Compensation  Committee  Interlocks and Insider  Participation  -  Stockholders'
Agreement"  below. The  Compensation and Nominating  Committee met four times in
2000.                                                                           

Audit Committee Report                                                          

         The Board of Directors  has approved and adopted a written  charter for
the Audit Committee which is included as Appendix G to this proxy statement. The
Board of Directors  has  determined  that each member of the Audit  Committee is
"independent" as defined in Section  303.01(B)(2)(a) and Section 303.01(B)(3) of
the New York Stock Exchange's listing standards.                                

         The Audit  Committee has reviewed and  discussed the audited  financial
statements  of the Company for the fiscal year ended  December 31, 2000 with the
Company's management.  The Audit Committee has discussed with Ernst & Young LLP,
the Company's independent public auditors,  the matters required to be discussed
by Statement on Auditing Standards No. 61, Communication with Audit Committees. 

         The Audit  Committee has also 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, 2000 for filing  with the  Securities  and
Exchange Commission.                                                            

[October ___, 2001]                                                             

Audit Committee                                                                 

Shelley F. Greenhaus                                                            
Morton E. Handel                                                                
Michael J. Petrick                                                              

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Compensation of Directors                                                       

         Non-employee  directors currently receive an annual retainer of $25,000
and an annual  grant of options to purchase  10,000  shares of Common Stock that
immediately  vest.  Non-employee  directors  also  receive a  one-time  grant of
five-year options to purchase 20,000 shares of Common Stock at an exercise price
equal to the fair  market  value of the  Common  Stock on the date of the grant.
Those  options  expire within 90 days  following  the date a director  ceases to
serve on the Board of Directors and vest  one-third on the date of the grant and
one-third on each of the two succeeding anniversaries of the grant. In addition,
the  chairmen  of the  Compensation  and  Nominating  Committee  and  the  Audit
Committee receive an annual retainer of $5,000,  and the non-executive  Chairman
of the Board of Directors  receives an annual payment of $100,000 and a one-time
grant of options to purchase  30,000 shares of Common Stock on the same terms as
those applicable to the options made available to the other non-employee members
of the Board 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.                                                    

Compensation Committee Interlocks and Insider Participation                     

         Messrs.  Handel,  Halpin,  Ganis and  Perlmutter  serve now, and served
during 2000, on the Company's Compensation and Nominating Committee. None of the
individuals mentioned above was an officer or employee of the Company, or any of
its  subsidiaries,  during 2000 or formerly.  Mr. Handel is, and Mr.  Perlmutter
once was, the Company's non-executive Chairman of the Board of Directors.       

Stockholders' Agreement                                       

         The  Company  and  the   following   stockholders   are  parties  to  a
Stockholders'  Agreement (the "Stockholders'  Agreement") dated as of October 1,
1998:                                                                           

         (1)    (i) Avi Arad,  (ii) Isaac  Perlmutter,  (iii)  Isaac  Perlmutter
                T.A.,  (iv) the Laura & Isaac  Perlmutter  Foundation  Inc., (v)
                Object  Trading Corp.,  and (vi) Zib Inc. (the  "Perlmutter/Arad
Group");                                        

         (2)    (i) Mark Dickstein,  (ii) Dickstein & Co., L.P., (iii) Dickstein
                Focus Fund  L.P.,  (iv)  Dickstein  International  Limited,  (v)
                Elyssa  Dickstein,  Jeffrey  Schwarz and Alan Cooper as Trustees
                U/T/A/D 12/27/88,  Mark Dickstein,  Grantor, (vi) Mark Dickstein
                and  Elyssa  Dickstein,  as  Trustees  of the  Mark  and  Elyssa
                Dickstein Foundation, and (vii) Elyssa Dickstein (the "Dickstein
                Entities"  and,  together with the  Perlmutter/Arad  Group,  the
"Investor Group"); and                          

         (3)    (i)  The  Chase  Manhattan  Bank,  (ii)  Morgan  Stanley  &  Co.
                Incorporated ("Morgan Stanley"), and (iii) Whippoorwill as agent
                of and/or  general  partner for certain  accounts and funds (the
                "Lender Group").  Each of the members of the Lender Group is one
                of the "Secured Lenders" referred to in the Fourth Amended Joint
                Plan of  Reorganization  proposed by those "Secured Lenders" and
                the  Company  in  the   bankruptcy   matter  of  In  Re:  Marvel
                Entertainment  Group,  Inc. et al. (the "Plan");  and all of the
                "Secured  Lenders" as that term is defined  more  broadly in the
    Plan are members of the "Plan Secured Lender Group".

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         Under the Stockholders' Agreement, its parties initially agreed to take
such action as may  reasonably be in their power to cause the Board of Directors
to include,  subject to certain  conditions,  six  directors  designated  by the
Investor Group and five directors  designated by the Lender Group. After July 1,
2000,  decreases in beneficial ownership of Capital Stock by either the Investor
Group  or the  Lender  Group  below  certain  pre-determined  levels,  including
decreases  that occurred prior to July 1, 2000,  result in a decreased  right to
designate  directors and a forfeiture  of seats on the Board of  Directors.  The
Investor  Group,  the Lender Group and the Company have agreed that decreases in
the beneficial ownership of Capital Stock by the Plan Secured Lender Group since
October 1, 1998 have resulted in the number of directors  which the Lender Group
has the right to nominate to decrease  from five  directors to three  directors.
The Stockholders' Agreement also provides for the creation of various committees
of the Board of Directors as well as the  composition of those  committees.  The
decreases in the Plan Secured  Lender  Group's  beneficial  ownership of Capital
Stock have also  caused the  number of  members of the Audit  Committee  and the
Compensation and Nominating  Committee who may be designated by the Lender Group
to decrease by one director.                                                    

         As of September  7, 2001,  the parties to the  Stockholders'  Agreement
have the power to vote, in the aggregate,  58.7% in combined voting power of the
outstanding  shares of Capital  Stock.  The 58.7% figure does not include shares
beneficially  owned by the Dickstein  Entities.  Those shares are covered by the
Stockholders'  Agreement,  but the  Company  does not know the  number  of those
shares. The Dickstein Entities beneficially own less then 5% of the Common Stock
and no  longer  file  ownership  reports  on  Schedules  13D  and 13G  with  the
Securities and Exchange Commission.                                             

Registration Rights Agreements                                

         Mr.  Dickstein and certain of his affiliates,  Object Trading Corp. (an
affiliate of Mr.  Perlmutter),  Whippoorwill as agent for and/or general partner
for certain  institutions  and funds,  the Company and certain other parties are
parties  to a  Registration  Rights  Agreement  dated as of October 1, 1998 (the
"October  Registration  Rights  Agreement").  Mr. Arad, Mr. Perlmutter,  certain
affiliates of Mr.  Perlmutter  (other than Object Trading Corp.) and the Company
are parties to a Registration Rights Agreement dated as of December 8, 1998 (the
"December Registration Rights Agreement").                                      

         The  terms  of  the  December   Registration   Rights   Agreement   are
substantially  identical to those of the October  Registration Rights Agreement.
Under the terms of each of the Registration  Rights Agreements,  the Company has
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,
all  shares of Common  Stock  issuable  upon  conversion  of those  shares of 8%
Preferred  Stock,  certain  convertible  debt  securities  that the  Company may
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.                       

Agreements Relating to the Purchase of Preferred Shares       

         Zib  Inc.  ("Zib")  (an  entity  owned  entirely  by  Mr.  Perlmutter),
Dickstein  Partners  Inc. (an  affiliate  of Mr.  Dickstein)  and Toy Biz,  Inc.
entered  into a Commitment  Letter,  dated  November 19, 1997,  in which Zib and
Dickstein  Partners Inc.  committed to purchase  $60,000,000  and $30,000,000 in
amount,  respectively,  of the 8%  Preferred  Stock of the  Company to be issued
pursuant to the Plan.  Pursuant to the Plan and a Stock Purchase Agreement dated
as of October 1, 1998, (i) certain secured creditors of MEG purchased,  pursuant
to an option in the Plan, $20,071,480 in amount of 8% Preferred Stock that would
otherwise  have been  purchased by Zib;  (ii)  Whippoorwill,  as agent of and/or
general partner for certain                                                     

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institutions  and  funds,  purchased,   pursuant  to  an  assignment  from  Zib,
$5,000,000  in amount of 8%  Preferred  Stock  that  would  otherwise  have been
purchased  by Zib;  (iii) Zib  purchased  $34,928,520  in amount of 8% Preferred
Stock; and (iv) Dickstein Partners Inc. and its assignees purchased  $30,000,000
in amount of 8% Preferred Stock.                                                

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 planning  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  $1,170,000,  $966,000 and $159,000 in
1999,  2000 and 2001,  respectively.  The  Company  retains  the  services  of a
non-affiliated media consulting agency on matters of advertising creativity.    

Employee, Office Space and Overhead Cost Sharing Arrangements 

         The  Company  and  Tangible  Media  have  shared  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   governing  the  Company's  sharing  of
employees,  office space and overhead  expenses (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,
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  the Cost  Sharing
Agreement,  Tangible Media paid approximately $147,000,  $155,000 and $67,000 to
the Company in 1998, 1999 and 2000, respectively.                               

      Agreement Relating to the Issuance and Delivery of Letters of Credit

         The Company,  Marvel Characters and Object Trading Corp. are parties to
an agreement  under which Object  Trading Corp. has agreed to cause the issuance
and delivery of certain  letters of credit that contain  substantially  the same
terms  and  conditions  as the  letters  of  credit  outstanding  under a Credit
Agreement  dated as of April 1, 1999 between the Company,  the Guarantors  party
thereto,  the Lenders  party thereto and  Citibank,  N.A., as Agent,  Collateral
Agent and Issuer, as amended (the "Credit Agreement"). The new letters of credit
replace  the  outstanding  letters  of  credit  issued  pursuant  to the  Credit
Agreement in the aggregate face amount of  $12,375,000,  as well as a $3,400,000
letter of credit issued in connection  with the appeal of an adverse  litigation
decision.                                                                       

Payment Guarantee Agreement                                   

         Mr.  Perlmutter and Diamond Comic  Distributors,  Inc.  ("Diamond") are
parties to an agreement  whereby Mr.  Perlmutter has agreed to guarantee payment
of certain  amounts,  up to a maximum of $2.5  million,  that the  Company  owes
Diamond Select Toys and  Collectibles,  LLC ("Diamond Toys") under a Distributor
Agreement  dated  August 24, 2001 between the Company  (acting  through Toy Biz,
Inc.) and Diamond Toys (the "Distributor  Agreement") and that Marvel Characters
owes Diamond Toys under a License  Agreement dated April 24, 2001 between Marvel
Characters and Diamond Toys.  Mr.  Perlmutter                                   

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is obligated to pay these  amounts owed by the Company and Marvel  Characters in
the event that these amounts do not offset the amounts  Diamond owes the Company
pursuant to an Agency  Agreement  dated  April 24, 2001  between the Company and
Diamond.  Mr.  Perlmutter's  obligation  to pay any  portion  of  these  amounts
automatically  terminates  once the Up Front Payment  Balance (as defined in the
Distributor Agreement) is reduced to zero.                                      

RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS

         During  2000,  Ernst & Young  LLP  provided  various  audit  and  other
services to the Company as described below.                                     

Audit Fees                                                                      

         The  aggregate  fees  billed  by  Ernst  & Young  LLP for  professional
services rendered for the audit of the Company's annual financial statements for
the fiscal  year  ending  December  31,  2000 and the  reviews of the  financial
statements included in the Company's Form 10-Q Reports for such fiscal year were
$273,000.                                                                       

Financial Information Systems Design and Implementation Fees                    

         Ernst & Young LLP did not  render  any  professional  services  for the
Company  in  connection   with   financial   information   systems   design  and
implementation.                                                                 

All Other Fees                                                                  

         Ernst & Young  LLP  billed  an  aggregate  of  $125,000  for all  other
non-audit services performed for the Company in 2000.                           

         The Audit Committee has considered whether the services described above
are compatible with  maintaining the independent  accountant's  independence and
has  determined  that such services have not  adversely  affected  Ernst & Young
LLP's independence.                                                             

         The Board of Directors  has  appointed  Ernst & Young as the  Company's
independent  accountants  for the fiscal year ending  December 31, 2001, and has
directed that the  appointment of the  independent  accountants be submitted for
ratification  by the  stockholders  at the  Annual  Meeting.  Ernst & Young  has
audited  the  consolidated  financial  statements  of the  Company  since  1991.
Representatives  of Ernst & Young will be present  at the Annual  Meeting,  will
have the  opportunity  to make a  statement  if they desire to do so and will be
available to respond to appropriate questions.                                  

         The  ratification  of the appointment of Ernst & Young as the Company's
independent  accountants  for the fiscal  year  ending  December  31,  2001 will
require the affirmative vote of the holders of a majority in voting power of the
outstanding  shares of Common Stock present in person or represented by proxy at
the Annual Meeting and, in each case,  entitled to vote. In determining  whether
the proposal has received the requisite number of affirmative votes, abstentions
will be counted  and will have the same effect as a vote  against the  proposal.
Broker  non-votes will be disregarded  and will have no effect on the outcome of
the vote.                                                                       

         Stockholder  ratification  of the  appointment  of Ernst & Young as the
Company's  independent  accountants  is  not  required  by  the  Certificate  of
Incorporation or By-Laws or otherwise.  The Board of Directors is submitting the
appointment of Ernst & Young 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                                                     

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Board of Directors will reconsider  whether or not to retain Ernst & Young. Even
if the  appointment  is ratified,  the Board of Directors in its  discretion may
direct the  appointment of a different  independent  accounting firm at any time
during the year if the Board of Directors determines that such a change would be
in the  interests  of the Company and its  stockholders.  The Board of Directors
unanimously  recommends  that  stockholders  vote  FOR the  ratification  of the
appointment of Ernst & Young as the Company's independent accountants for 2001. 

EXECUTIVE OFFICERS

Executive Officers                                                              

         The  following  sets  forth the  positions  held with the  Company  and
selected biographical  information for the executive officers of the Company who
are not directors.                                                              

         Alan Fine (50) served as a director of the Company from June 1997 until
October 1998.  Mr. Fine has been  President and Chief  Executive  Officer of Toy
Biz,  Inc.  since August 2001 and served in that  capacity  from October 1998 to
April 2001.  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.  From June 1996 until
September  1996, Mr. Fine was President and Chief  Operating  Officer of Toy Biz
International  Ltd.  From May 1995 until May 1996,  Mr. Fine was  President  and
Chief  Operating  Officer of Kay-Bee  Toys,  a national toy  retailer,  and from
December  1989 until May 1995,  Mr.  Fine was  Senior  Vice  President,  General
Merchandise Manager of Kay-Bee Toys.                                            

         William  Jemas,  Jr. (43) has been President of Publishing and Consumer
Products  since  February  2000.  Previously,   Mr.  Jemas  was  Executive  Vice
President,  Madison Square Garden Sports from December 1998 until February 2000.
From July 1996 until  December  1998,  Mr.  Jemas was founder and  President  of
Blackbox, L.L.C. and worked and consulted for several media companies, including
Lancet Media, G-Vox Interactive and Hearst  Entertainment.  From July 1993 until
June 1996,  Mr.  Jemas held  various  executive  positions  with MEG,  including
Executive Vice President and President of Fleer Corporation.                    

         Allen S. Lipson (58) has been  Executive Vice  President,  Business and
Legal Affairs and Secretary of the Company since  November  1999.  From May 1996
until  November  1999, Mr. Lipson was Vice  President,  Administration,  General
Counsel and Secretary of Remington  Products  Company  L.L.C.  From October 1988
until May 1996, Mr. Lipson was Vice  President and General  Counsel of Remington
Products Company.                                                               

         Richard E. Ungar (50) has  served as  President  of Marvel  Characters,
Inc. ("Marvel Characters") since October 1999. From May 1999 until October 1999,
Mr.  Ungar was a  consultant  for the  Company,  and from October 1998 until May
1999, Mr. Ungar was Chairman of BKM, Inc., a children's television network. From
January 1997 until October 1998,  Mr. Ungar was an  independent  consultant  and
producer. From January 1992 until January 1997, Mr. Ungar held various positions
with New World  Entertainment,  including President of Programming and President
and Chief Executive Officer of New World Animation.                             

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EXECUTIVE COMPENSATION

         The  following  table sets forth  information  for the years  indicated
concerning the compensation awarded to, earned by or paid to the Chief Executive
Officer  of  the  Company  during  2000  and  the  Company's  four  most  highly
compensated  executive  officers,  other  than  the  Company's  Chief  Executive
Officer,  who were serving as executive  officers of the Company on December 31,
2000 (the "Named Executive  Officers"),  for services rendered in all capacities
to the Company and its subsidiaries during such periods.                        

                                                        [Enlarge/Download Table]

                           Summary Compensation Table                                                              

                                                                                                         Long-Term 
                                                                       Annual Compensation (1)         Compensation
                                                                 ------------------------------------  ------------
                                                                                         Other Annual   Securities 
                                                                               Bonus     Compensation   Underlying 
Name and Principal Position                            Year      Salary ($)    ($)(2)        ($)        Options (#)
--------                                               ----      ----------    ------    ------------   -----------

                                                                                                                   
F. Peter Cuneo (3)                                     2000     $  694,615      --       $78,678 (4)       --      
      President and Chief Executive                    1999        295,000    $490,000       --           750,000  
      Officer                                                                                                      

Alan Fine                                              2000        525,000      --         8,320 (5)        --     
      President and Chief Executive                    1999        500,000      225,000    5,673 (5)      200,000  
      Officer of the Company's Toy Biz                 1998        425,000      307,001      --           300,000  
      Division                                                                                                     

Avi Arad (6)                                           2000        375,000      --         67,137 (7)       --     
      Chief Creative Officer of the                    1999        375,000      201,563   109,774 (7)       --     
      Company and President and Chief Executive        1998        375,000      --           --         1,000,000  
      Officer of the Company's Marvel Studios                                                                      
      Division                                                                                                     

William Jemas, Jr. (8)                                 2000        267,307      237,500      --           175,000  
      President of Publishing and Consumer Products                                                                

Richard E. Ungar (9)                                   2000        404,808 (10) --           --             --     
      President of Marvel Characters Group             1999         46,479 (10) 140,000      --           200,000  

---------------------------                                                                                        
(1)    Does not include value of perquisites and other personal benefits for any                                   
       Named  Executive  Officer  (other than Mr.  Cuneo and Mr. Arad) since the                                   
       aggregate amount of such  compensation is the lesser of $50,000 or 10% of                                   
       the total of annual salary and bonus reported for the named executive.                                      
(2)    Bonus amounts shown are those accrued for and paid in or after the end of                                   
       the year.                                                                                                   
(3)    Mr. Cuneo's employment with the Company commenced in July 1999.                                             
(4)    Amounts  shown  include  $50,700 for  apartment  provided by the Company,                                   
       $18,000 car allowance and $9,978 in Company matching  contribution to the                                   
       Company's 401(k) Plan.                                                                                      
(5)    Amounts  shown are the Company  matching  contributions  to the Company's                                   
       401(k) Plan.                                                                                                
(6)    Mr. Arad's employment with the Company commenced in October 1998. Amounts                                   
       shown for  periods  prior to October 1, 1998  represent  consulting  fees                                   
       received by Mr. Arad.                                                                                       
(7)    Amounts shown for  automobile  and driver  provided by the Company and in                                   
       2000,  reimbursement  of moving expenses of $38,672 incurred arising from                                   
       Mr. Arad's relocation to the West Coast.                                                                    
(8)    Mr. Jemas' employment with the Company commenced in February 2000.                                          
(9)    Mr. Ungar's employment with the Company commenced in October 1999.                                          
(10)   Amounts shown include payments to a personal service company owned by Mr.                                   
       Ungar.                                                                                                      

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Option Grants Table                                                             

         The following table shows the Company's  grants of stock options to the
Named  Executive  Officers in 2000.  Each stock  option grant was made under the
Company's 1998 Plan that became  unconditionally  effective on January 20, 1999.
No SARs (stock appreciation rights) were granted by the Company in 2000.        

                                                        [Enlarge/Download Table]


                                         Number of                                                                    
                                         Shares of                                                                    
                                           Common      Percent of                                                     
                                           Stock          Total                            Potential Realizable Value 
                                         Underlying      Options                           at Assumed Annual Rates of 
                                          Options      Granted to   Exercise               Stock Price Appreciation   
                                         Granted in     Employees   Price per  Expiration      for Option Terms       
    Name                                    2000         in 2000      share       Date          5%            10%     
    ----                                 ----------    ----------   ---------  ----------  -------------  ------------

                                                                                                                      
William Jemas, Jr. (1).............       125,000         20.3%       $5.687    02/14/10     $447,140    $1,133,135   
William Jemas, Jr. (2).............        50,000          8.1         7.375    07/10/10      231,944       587,788   

---------------                                                                                                       
(1)    Mr.  Jemas'  options  become  exercisable  in three  equal  installments:                                      
       options to buy 41,667 shares of Common Stock become  exercisable  on each                                      
       of February 14, 2001, February 14, 2002 and February 14, 2003.                                                 
(2)    Mr.  Jemas'  options  become  exercisable  in three  equal  installments:                                      
       options to buy 16,667 shares of Common Stock are  exercisable  on each of                                      
       July 10, 2001, July 10, 2002 and July 10, 2003.                                                                

Year-End 2000 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,
2000. No Named Executive Officers exercised stock options during 2000.          

                                                        [Enlarge/Download Table]


                                                                   Number of Shares of             Value of           
                                                                 Common Stock Underlying          Unexercised         
                                         Shares       Value       Unexercised Options at     In-the-Money Options at  
                                        Acquired     Realized         Year-End (1)                 Year-End           
    Name                               on Exercise     ($)      Exercisable  Unexercisable  Exercisable  Unexercisable
------------                           -----------   --------   -----------  -------------  -----------  -------------

                                                                                                                      
F. Peter Cuneo.....................        --          --        375,000      375,000         --            --        
Avi Arad...........................        --          --        750,000      250,000         --            --        
Alan Fine..........................        --          --        291,667      208,333         --            --        
Richard E. Ungar...................        --          --         66,667      133,333         --            --        
William Jemas, Jr..................        --          --          --         175,000         --            --        

--------------------                                                                                                  

(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
following  executive  officers:  Avi Arad, Chief Creative Officer of the Company
and  President  and Chief  Executive  Officer of the  Company's  Marvel  Studios
Division;  F. Peter Cuneo,  President and Chief  Executive  Officer;  Alan Fine,
President and Chief Executive Officer of the Company's Toy Biz Division; William
Jemas, Jr., President of Publishing and Consumer Products; and Richard E. Ungar,
President of Marvel Characters.                                                 

         Employment  and  License  Agreements  with Mr.  Arad.  Pursuant  to the
amendment  to his  employment  agreement,  Mr.  Arad has  agreed to  render  his
exclusive  and  full-time  services  to the  Company  for a term  of  employment
expiring on December 31, 2002. Under his employment  agreement,  as amended, Mr.
Arad receives a base salary, subject to discretionary increases, of $375,000 and

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an annual  bonus of $75,000.  With  respect to each media  project for which Mr.
Arad performs  significant  services,  Mr. Arad is entitled to certain customary
executive  producer and/or  producer fees including  $350,000 per motion picture
project,  $10,000 per episode for animated network television  projects,  $7,500
per episode for animated syndicated  television projects and $20,000 per episode
for  one  hour  live  action  television  projects.  Mr.  Arad  is  entitled  to
discretionary  bonuses and  participation  in the Company's stock option plan as
determined by the Board of Directors. Mr. Arad also is entitled to the use of an
automobile and 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 thereafter for a period of
up to twelve months.  Mr. Arad's  employment  agreement  replaced his consulting
agreement with the Company, under which Mr. Arad also earned $375,000 per year. 

         In addition, the Company and 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. In no event, however, may the total
royalties payable to Arad Associates during any calendar year exceed $7,500,000.
The Company  accrued  royalties  to Mr. Arad for toys he invented or designed of
approximately  $4,300,000,  $3,000,000  and  $1,600,000  during the years  ended
December 31, 1998, 1999 and 2000,  respectively.  In September 1998, the license
with Arad Associates was amended to provide that Arad Associates will receive an
annual  royalty of $650,000 for  products  based on the Marvel  characters  (the
former  royalty rate was 4%). The amendment  leaves intact a provision that Arad
Associates  is to receive a negotiated  royalty not to exceed 5% of net sales of
products not based on the Marvel characters.                                    

         Employment  Agreement  with  Mr.  Cuneo.  Pursuant  to  his  employment
agreement,  Mr. Cuneo has agreed to render his exclusive and full-time  services
to the Company for a term of  employment  expiring on July 21,  2002.  Under his
employment agreement, Mr. Cuneo receives a base salary, subject to discretionary
increases,  of $650,000 and a sign-on bonus of $100,000.  Starting in 2000,  Mr.
Cuneo  will be  eligible  to earn an annual  bonus  based on the  attainment  of
certain  performance  goals.  The  target  annual  bonus  is equal to 60% of Mr.
Cuneo's  base  salary.  Mr.  Cuneo  also  receives a $1,500  monthly  automobile
allowance and is entitled to participate in employee  benefit plans available to
similarly situated  employees of the Company.  The Company has agreed to provide
Mr. Cuneo with a suitable  apartment in  Manhattan  for up to one year,  and the
Company will pay Mr. Cuneo a $25,000  relocation  allowance if he relocates  his
primary  residence to the New York City metropolitan area during the term of his
employment.                                                                     

         Pursuant  to his  employment  agreement,  Mr.  Cuneo  has been  granted
options to purchase  750,000  shares of Common  Stock.  The options  vest over a
three-year  period.  The  options  become  exercisable  in full upon a change in
control of the Company.                                                         

         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,  2003.  Under his
employment agreement,  Mr. Fine receives a base salary of $450,000.  Mr. Fine is
eligible to earn an annual bonus equal to 50% of Mr. Fine's 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.  The  employment
agreement  further provides for the  effectiveness  and the continual vesting of
all options  previously granted to Mr. Fine as if no break in employment service
had  occurred.  From April 2001 to August  2001,  the Company  paid Mr. Fine his
monthly salary.                                                                 

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         Employment  Agreement  with  Mr.  Jemas.  Pursuant  to  his  employment
agreement,  Mr. Jemas has agreed to render his exclusive and full-time  services
to the Company for a term of employment expiring on February 15, 2002. Under his
employment agreement, Mr. Jemas receives a base salary, subject to discretionary
increases, of $275,000. The employment agreement provides for a sign-on bonus of
$100,000  payable in two installments of $50,000 each and a bonus for 2000 equal
to at least 50% of his base  salary  for the year.  Mr.  Jemas  also  receives a
$1,100 monthly  automobile  allowance and is entitled to participate in employee
benefit plans  generally  available to the Company's  employees.  The employment
agreement  further provides for participation in the Company's stock option plan
as  determined  by the Board of Directors  and provides  that Mr. Jemas shall be
entitled  to  receive a grant of options to  purchase  125,000  shares of Common
Stock.                                                                          

         Employment  Agreement  with  Mr.  Ungar.  Pursuant  to  his  employment
agreement,  Mr. Ungar has agreed to render his exclusive and full-time  services
to the Company for a term of employment  expiring on October 25, 2002. Under his
employment agreement, Mr. Ungar receives a base salary, subject to discretionary
increases,  of $325,000.  The employment  agreement provides for an annual bonus
based on the attainment of certain  performance goals. Mr. Ungar also receives a
$1,300 monthly  automobile  allowance and is entitled to participate in employee
benefit plans generally  available to the Company's  employees.  Pursuant to his
employment  agreement,  Mr. Ungar has been granted  options to purchase  200,000
shares of Common Stock. The options will vest over a three-year period.         

         In  addition,  the  Company  and  Brentwood  Television  Funnies,  Inc.
("Brentwood"), of which Mr. Ungar is the sole shareholder, are parties to a Loan
Out Agreement under which Brentwood  agrees to provide the services of Mr. Ungar
as Executive Producer on all television programs involving Marvel characters for
a term expiring on October 25, 2002. Under the agreement,  Brentwood  receives a
producer fee of $175,000 per year, subject to discretionary increases.          

         Termination  Provisions.  The employment  agreements of Messrs.  Cuneo,
Fine,  Jemas and Ungar and the Loan Out Agreement with Brentwood,  provide that,
in the event of termination,  the executive is entitled to certain  payments and
benefits  depending on the  circumstances of the  termination.  Upon a change in
control of the Company,  the executive is entitled to a severance  payment equal
to two times the sum of his then-current  base salary and the average of the two
most recent annual  bonuses  paid.  If any payments to the  executive  under his
employment agreement  ("Parachute  Payments") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code, then the executive will be
entitled  to  receive  an  additional  payment  from the  Company  (a  "Gross-Up
Payment") in an amount such that the executive 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 and Related Provisions. Each of the employment
agreements with Messrs.  Arad, Cuneo, Fine, Jemas and Ungar prohibits 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  provides that all inventions  made by the employees  during their
employment  belong  to the  Company.  In  addition,  those  employees  (with the
exception  of Mr.  Fine)  agree  during  their  employment,  and  for  one  year
thereafter, not to engage in any competitive business activity.                 

REPORT ON EXECUTIVE COMPENSATION

         The  Compensation  and Nominating  Committee met four times in 2000 and
made all compensation decisions for the Company's executive officers.           

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         The Company's executive compensation during 2000 was comprised of three
elements:  annual base salary, annual bonus compensation and long-term incentive
compensation.  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,
the  Compensation  and Nominating  Committee in general  considered the level of
responsibility,  knowledge  and  experience  required 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.                                                                    

         The Board of Directors  believes  that the  salaries  paid to the Named
Executive  Officers  in 2000 were  commensurate  with  prevailing  salaries  for
similar positions in the toy industry and served the Company's goal of retaining
its experienced executive officers.                                             

         The Company's goal with annual discretionary bonuses has generally been
to  reward   individual   contributions  to  the  Company's   performance.   The
Compensation  and Nominating  Committee  adopted a new bonus plan that commenced
with the 2000 bonuses.  The 2000 bonuses were based  principally  upon objective
measures of the  Company's  performance  as a whole and the  performance  of the
specific business division to which each executive is assigned.                 

         In  November  1998,   the   Compensation   and   Nominating   Committee
recommended,  and the Board of Directors  adopted,  the 1998 Plan. The Company's
long-term  incentive  compensation  is provided by grants of stock options under
the 1998 Plan. The Compensation  and Nominating  Committee's goal with grants to
executive  officers  under the 1998 Plan is to focus  executive  behavior on the
Company's  long-term  performance,  and to  create a sense of  ownership  in the
Company that causes executive decisions to be aligned with the best interests of
the Company's stockholders. All outstanding stock options granted by the Company
under its prior stock option plan were  terminated  prior to the  acquisition of
MEG. The  termination of those options was required by an agreement  between the
Company and MEG's senior secured lenders in connection with the  consummation of
MEG's plan of reorganization.  In November 1998, the Compensation and Nominating
Committee made broad-based  awards under the 1998 Plan,  including awards to the
Named  Executive  Officers.   In  making  those  awards,  the  Compensation  and
Nominating  Committee  recognized that the termination of its previously granted
options had eliminated  long-term  incentive  compensation  as an element of the
compensation structure of its executives and that the awards under the 1998 Plan
would need to replace that element. For that reason, the total awards made under
the 1998 Plan in 1998  were  considerably  greater  than the  total  awards  the
Compensation and Nominating Committee made in 1999.                             

         Mr.  Cuneo's  compensation  during 2000 was governed by his  employment
agreement.  The  compensation  package  provided for in Mr.  Cuneo's  employment
agreement  was  believed by the  Compensation  and  Nominating  Committee  to be
comparable  to the  compensation  paid to  chief  executive  officers  of  other
similarly situated public companies.                                            

Compensation and Nominating Committee                                           

James F. Halpin                                                                 
Morton E. Handel                                                                
Sid Ganis                                                                       
Isaac Perlmutter                                                                

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 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 a composite peer group index comprised of
publicly traded companies,  weighted by equity  capitalization,  selected by the
Company  (the  "Peer  Group  Index").  The  comparison  for each of the  periods
presented  assumes that, on February 23, 1995 (the date of  consummation  of the
Company's  initial  public  offering),  $100 was  invested  in shares of Class A
Common  Stock of Toy Biz,  Inc.  (each  share of which was  reclassified  as and
changed  into one share of  Common  Stock on  October  1,  1998) and the  stocks
included  in the S&P  Midcap  400  Index and the Peer  Group  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.                         

         The  companies  in  the  Peer  Group  Index,  which  were  selected  as
comparable  companies in the toy  manufacturing  industry,  are Ohio Art Co. and
Toymax International, Inc.                                                      

 Value of $100
 invested over period presented:

        Marvel Enterprises, Inc. Common Stock..................   $     6.75
        Peer Group.............................................   $    11.23
        S&P Midcap 400 Index...................................   $   243.20

COMPARE CUMULATIVE TOTAL RETURN 
AMONG MARVEL ENTERPRISES, INC., 
S&P MIDCAP 400 INDEX AND PEER GROUP INDEX 

 [GRAPHIC OMITTED]

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 SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets forth  certain  information  regarding  the
beneficial  ownership of Common  Stock and 8% Preferred  Stock as of December 4,
2001 (based on 34,762,984  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 or 8% Preferred Stock (based, in part, upon copies
of all Schedules 13D and 13G provided to the Company), (ii) each director of the
Company,  (iii)  each  Named  Executive  Officer  of the  Company,  and (iv) all
executive  officers and directors of the Company as a group.  Because the voting
or dispositive  power of certain shares listed in the table is shared,  the same
securities are sometimes listed opposite more than one name in the table and the
sharing of voting or  dispositive  power is described  in a footnote.  The total
number of  shares  of Common  Stock  and 8%  Preferred  Stock  listed  below for
directors and executive officers as a group eliminates such duplication.        

         Each share of 8%  Preferred  Stock is  convertible  by its holder  into
1.039  shares of  Common  Stock.  The table  assumes  that no  warrants  for the
purchase of stock of the Company have been  exercised.  As far as the Company is
aware,  none of the  stockholders  named in the table owns any  warrants for the
purchase of stock of the Company.                                               

         Under the rules of the Securities and Exchange  Commission,  beneficial
ownership of a share of 8% Preferred Stock constitutes  beneficial  ownership of
1.039 shares of Common  Stock (the amount into which the 8%  Preferred  Stock is
convertible).  Beneficial ownership of Common Stock is shown in the main part of
the table and the portion of that beneficial  ownership  traceable to beneficial
ownership of 8% Preferred Stock is set forth in the footnotes.                  

         The  Schedules 13D and 13G that the Company used in compiling the table
take  differing  positions  as  to  whether  shares  of  stock  covered  by  the
Stockholders'  Agreement are held with "shared voting power." The table does not
attempt to reconcile those differences.                                         

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 Shares of Common Stock Beneficially Owned

                                                        [Enlarge/Download Table]

                                                       Sole Voting         Shared Voting       Sole Dispositive   Shared Dispositive
            Five Percent Stockholders,                    Power                Power                Power               Power       
                                                       -----------         -------------        ----------------  ----------------  

                  Directors                                    Percent             Percent              Percent            Percent  
            and Executive Officers                     Number  of Class   Number   of Class     Number  of Class   Number  of Class 
            ----------------------                     ------  --------   ------   ---------    ------  --------   ------  -------- 

                                                                                                                                    
Avi Arad (1) (2)...................................        --     *    30,449,877   64.2%    5,210,000  14.5%         --       *    
     1698 Post Road East                                                                                                            
     Westport, Connecticut 06880                                                                                                    
Isaac Perlmutter (2) (3)...........................        --     *    30,449,877   64.2%    15,632,812 38.7%         --       *    
     P.O. Box 1028                                                                                                                  
     Lake Worth, Florida 33460                                                                                                      
Morgan Stanley & Co. Incorporated (2) (4)..........        --     *    30,449,877   64.2%         --       *      5,593,798  14.7%  
     1585 Broadway                                                                                                                  
     New York, New York 10036                                                                                                       
Whippoorwill  Associates,  Incorporated as agent of        --     *    4,097,199    10.9%         --       *      4,097,199  10.9%  
and/or  general  partner for  certain  institutions                                                                                 
and funds (5)......................................                                                                                 
     11 Martine Avenue                                                                                                              
     White Plains, New York 10606                                                                                                   
Mark H. Rachesky, M.D. (6).........................        --     *    2,417,467    6.5%          --       *      2,417,467   6.5%  
     c/o MHR Fund Management LLC                                                                                                    
     40 West 57th Street, 33rd Floor                                                                                                
     New York, New York 10019                                                                                                       
Morton E. Handel (7)...............................    81,000     *       --         *            --       *        --         *    
F. Peter Cuneo (8).................................   732,714    2.1%     --         *            --       *        --         *    
Sid Ganis (9) .....................................    40,000     *       --         *            --       *        --         *    
Shelley F. Greenhaus (10) .........................    50,000     *       --         *            --       *        --         *    
James F. Halpin (9)................................    55,000     *       --         *            --       *        --         *    
Lawrence Mittman (9)...............................    50,000     *       --         *            --       *        --         *    
Rod Perth (9)......................................    50,000     *       --         *            --       *        --         *    
Michael J. Petrick.................................        --     *       --         *            --       *        --         *    
Alan Fine (11).....................................   442,334    1.3%     --         *            --       *        --         *    
William Jemas, Jr. (12)............................   103,334     *       --         *            --       *        --         *    
Richard E. Ungar (13)..............................   163,334     *       --         *            --       *        --         *    
All current  executive  officers and directors                                                                                      
 as a group                                                                                                                         
     (14 persons) (2) (14)......................... 1,942,050    5.3% 30,449,877   64.2%     20,842,812  50.3%      --         *    
---------                                                                                                                           
*   Less than 1%.                                                                                                                   

(1)    Figures include 1,060,000 shares of Common Stock subject to stock options
       granted  to Mr.  Arad  pursuant  to the Stock  Incentive  Plan  which are
       immediately  exercisable.  Mr.  Arad  is a  party  to  the  Stockholders'
       Agreement.  Except for the  5,210,000  shares  over which Mr. Arad may be
       deemed to have sole dispositive power,  shares over which Mr. Arad may be
       deemed to have shared voting power (which  include shares of Common Stock
       underlying  11,146,821  shares of 8%  Preferred  Stock) are  beneficially
       owned by other parties to the  Stockholders'  Agreement and it is only by
       reason of Mr. Arad's position as a party to the  Stockholders'  Agreement
that Mr. Arad may be deemed to possess that shared voting power.  

(2)    Figures  in the  table  and in the  footnotes  for the  number  of shares
       beneficially  owned by  parties  to the  Stockholders'  Agreement  do not
       include shares  beneficially owned by Dickstein Partners Inc. and certain
       of its affiliates  that are signatories to the  Stockholders'  Agreement.
       Shares of Common Stock  beneficially owned by Dickstein Partners Inc. and
       those  affiliates  are covered by the  Stockholders'  Agreement,  but the
       Company does not know the number of those shares. Dickstein Partners Inc.
       and its affiliates  beneficially own less than 5% of the Common Stock and
       no  longer  file  ownership  reports  on  Schedules  13D or 13G  with the
Securities and Exchange Commission.                               

(3)    Mr. Perlmutter is a party to the Stockholders' Agreement.                

   (a) Figures  include  30,000  shares of Common Stock subject to stock options
       granted to Mr. Perlmutter  pursuant to the Stock Incentive Plan which are
       immediately  exercisable.  Other shares over which Mr.  Perlmutter may be
 deemed to have sole dispositive power are directly held as follows:

                                                        [Enlarge/Download Table]

                      Holder                   Shares of Common Stock  Shares of 8% Preferred Stock
                      ------                   ----------------------  ----------------------------
                                                                                                   
Zib......                                           9,256,000              --                      
The Laura and Isaac Perlmutter Foundation Inc.        250,000              --                      
Object Trading Corp.                                   33,500           4,342,918                  
Classic Heroes, Inc.                                    --               287,170                   

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Biobright Corporation                                   --               287,170                   
Tangible Media, Inc.                                  400,000              --                      
Isaac Perlmutter T.A.                                  49,000            361,493                   
Isaac Perlmutter                                       20,000              --                      

       The sole stockholder of Zib, a Delaware corporation,  is Isaac Perlmutter
       T.A., a Florida  trust (the  "Perlmutter  Trust").  Mr.  Perlmutter  is a
       trustee and the sole beneficiary of the Perlmutter  Trust, and may revoke
       it at any time.  Mr.  Perlmutter  is a director and the  president of the
       Laura and Isaac  Perlmutter  Foundation  Inc.,  a Florida  not-for-profit
       corporation. Mr. Perlmutter is the sole stockholder of (i) Object Trading
       Corp.,  a Delaware  corporation,  (ii) Classic  Heroes,  Inc., a Delaware
       corporation, (iii) Biobright Corporation, a Delaware corporation and (iv)
       Tangible  Media,  Inc., a Delaware  corporation.  Mr.  Perlmutter  may be
       deemed to  possess  (i) the power to vote and  dispose  of the  shares of
       Capital Stock directly held by Zib, Object Trading Corp., Classic Heroes,
       Inc.,  Biobright  Corporation,  Tangible  Media,  Inc. and the Perlmutter
       Trust,  and (ii) the  power to  direct  the vote and  disposition  of the
       shares of Capital Stock  directly held by the Laura and Isaac  Perlmutter
Foundation Inc.                                                   

   (b) Except for the 15,632,812  shares over which Mr. Perlmutter may be deemed
       to have sole  dispositive  power  (which  include  shares of Common Stock
       underlying 5,384,324 shares of 8% Preferred Stock), shares over which Mr.
       Perlmutter  may be deemed to have  shared  voting  power  (which  include
       shares of  Common  Stock  underlying  11,146,821  shares of 8%  Preferred
       Stock) are beneficially  owned by parties to the Stockholders'  Agreement
       which are  unaffiliated  with Mr.  Perlmutter and it is only by reason of
       Mr. Perlmutter's position as a party to the Stockholders'  Agreement that
Mr. Perlmutter may be deemed to possess that shared voting power. 

(4)    Morgan Stanley is a party to the Stockholders' Agreement.  Morgan Stanley
       shares  dispositive  power over 5,593,798 shares with its parent,  Morgan
       Stanley  Dean  Witter & Co.  Except  for those  5,593,798  shares  (which
       include  shares  of  Common  Stock  underlying  3,199,591  shares  of  8%
       Preferred Stock),  shares over which Morgan Stanley may be deemed to have
       shared  voting power  (which  include  shares of Common Stock  underlying
       11,146,821  shares  of 8%  Preferred  Stock)  are  beneficially  owned by
       parties to the Stockholders' Agreement which are unaffiliated with Morgan
       Stanley and it is only by reason of Morgan Stanley's  position as a party
       to the  Stockholders'  Agreement  that  Morgan  Stanley  may be deemed to
possess that shared voting power.                                 

(5)    Whippoorwill  may be deemed to be the  beneficial  owner of these  shares
       (which include shares of Common Stock  underlying  2,616,367 shares of 8%
       Preferred Stock) because it has  discretionary  authority with respect to
       the  investments  of,  and acts as agent for,  the direct  holders of the
       shares.  Whippoorwill  disclaims any beneficial ownership of Common Stock
       or 8% Preferred  Stock except to the extent of  Whippoorwill's  pecuniary
       interest in that stock, if any. Whippoorwill,  as agent of and/or general
       partner  for  certain   institutions   and  funds,  is  a  party  to  the
       Stockholders'  Agreement.  Figures  include 83,932 shares of Common Stock
       (which  include  shares of Common Stock  underlying  53,461  shares of 8%
   Preferred Stock) that are not subject to the Stockholders' Agreement.

(6)    Based on a Schedule 13G filed with the Securities and Exchange Commission
       on November  12, 1999 by (i) MHR  Institutional  Partners  LP, a Delaware
       limited partnership  ("Institutional Partners"); (ii) MHRM Partners LP, a
       Delaware limited partnership  ("MHRM");  (iii) MHR Capital Partners LP, a
       Delaware limited partnership ("Capital Partners"); (iv) MHR Institutional
       Advisors  LLC,  a  Delaware  limited  liability  company  ("Institutional
       Advisors") and the general  partner of  Institutional  Partners and MHRM;
       (v) MHR Advisors LLC, a Delaware limited liability  company  ("Advisors")
       and the general partner of Capital  Partners;  and (vi) Mark H. Rachesky,
       M.D., the managing member of  Institutional  Advisors and Advisors.  Each
       party named in this  footnote has an office at 40 West 57th Street,  33rd
       Floor,  New  York,  NY 10019.  Figures  include  shares  of Common  Stock
underlying 2,248,736 shares of 8% Preferred Stock.                

(7)    Figures  include  60,000  shares of Common Stock subject to stock options
       granted  pursuant  to the Stock  Incentive  Plan  which  are  immediately
exercisable.                                                      

(8)    Figures  include  712,500 shares of Common Stock subject to stock options
       granted  pursuant  to the  Stock  Incentive  Plan  that  are  immediately
       exercisable  and 214 shares of Common Stock, of which Mr. Cuneo disclaims
beneficial ownership, owned by Mr. Cuneo's son.                   

(9)    Figures  include  30,000  shares of Common Stock subject to stock options
       granted  pursuant  to the  Stock  Incentive  Plan  that  are  immediately
exercisable.                                                      

(10)   Figures  include  30,000  shares of Common Stock subject to stock options
       granted  pursuant  to the  Stock  Incentive  Plan  that  are  immediately
       exercisable.  Does not include  shares held by various  institutions  and
       funds with respect to whose  investments  Whippoorwill has  discretionary
       authority and for which  Whippoorwill acts as agent. Mr. Greenhaus is the
       president and managing director of Whippoorwill.  Mr. Greenhaus disclaims
       beneficial ownership of the shares of Common Stock and 8% Preferred Stock
       owned by  discretionary  accounts  managed by  Whippoorwill  as set forth
       above except to the extent of his  pecuniary  interest in that stock,  if
any.                                                              

(11)   Figures  include  442,334 shares of Common Stock subject to stock options
       granted  pursuant  to the Stock  Incentive  Plan  which  are  immediately
exercisable.                                                      

(12)   Figures  include  103,334 shares of Common Stock subject to stock options
       granted  pursuant  to the Stock  Incentive  Plan  which  are  immediately
exercisable.                                                      

(13)   Figures  include  163,334 shares of Common Stock subject to stock options
       granted  pursuant  to the Stock  Incentive  Plan  which  are  immediately
exercisable.                                                      

(14)   Figures in the "Sole Voting  Power"  column,  the "Shared  Voting  Power"
       column,  and the "Sole Dispositive  Power" column include,  respectively,
       1,799,836,  1,090,000  and  1,090,000  shares of Common Stock  subject to
       stock  options  granted  pursuant to the Stock  Incentive  Plan which are
immediately exercisable.                                          

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         For a description  of certain  relationships  and related  transactions
involving  individuals  who  served  during  2000  on the  Board  of  Directors'
Compensation  and Nominating  Committee (or its  predecessor),  see "Election of
Directors--Compensation Committee Interlocks and Insider Participation," above. 

Loan Out Agreement                                                              

         The Company and Brentwood Television Funnies,  Inc.  ("Brentwood"),  of
which Mr.  Ungar is the sole  shareholder,  are parties to a Loan Out  Agreement
under which  Brentwood  agrees to provide the services of Mr. Ungar as Executive
Producer on all  television  programs  involving  Marvel  characters  for a term
expiring on October 25, 2002. Under the agreement, Brentwood receives a producer
fee of $175,000 per year, subject to discretionary increases.                   

ADDITIONAL INFORMATION

         The Company  will make  available  a copy of its Annual  Report on Form
10-K for the fiscal year ended December 31, 2000,  and any Quarterly  Reports on
Form  10-Q  filed  thereafter,  without  charge,  upon  written  request  to the
Secretary,  Marvel  Enterprises,  Inc., 10 East 40th Street,  New York, New York
10016. Each such request must set forth a good-faith  representation that, as of
the Record  Date,  September  7,  2001,  the person  making  the  request  was a
beneficial  owner of shares of Common  Stock or 8% Preferred  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 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  Securities  and Exchange
Commission  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 any  forms,  the  Company  believes  that all of its
officers,  directors and 10% Stockholders  complied will all filing requirements
applicable  to them with  respect to  transactions  during the fiscal year ended
December 31, 2000.                                                              

 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 2002 annual meeting
of  stockholders  must be  received by the  Company at its  principal  executive
offices  at 10 East  40th  Street,  New  York,  New York  10016,  no later  than
_____________, 2002.                                                            

         Under the By-Laws,  and as permitted by the rules of the Securities and
Exchange  Commission,  certain  procedures are provided which a stockholder must
follow to nominate certain persons for election                                 

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as  directors  or to  introduce  an item of  business  at the annual  meeting of
stockholders  of  the  Company.   These  procedures   provide  that  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 (October __, 2001) (or, for annual meetings not
held within 30 days before or after such  anniversary,  not later than the close
of  business  on the later of the 60th day prior to such  annual  meeting or the
10th day  following  the day on which such  meeting  is  publicly  announced  or
disclosed).  The persons designated as proxies by the Company in connection with
the 2002 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.                    

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 Capital Stock they represent in accordance
with their best judgment.                                                       

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Appendix A
Certificate of Amendment

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CERTIFICATE OF AMENDMENT

OF

 THE RESTATED CERTIFICATE OF INCORPORATION

OF

MARVEL ENTERPRISES, INC.

 ___________________________

 Adopted in accordance with the provisions

 of Section 242 of the General Corporation

Law of the State of Delaware

 ___________________________

     I, F. Peter Cuneo, President of Marvel Enterprises, Inc., a

corporation existing under the laws of the State of Delaware (the               

"Corporation"), do hereby certify as follows:                                   

      FIRST: That the Restated Certificate of Incorporation of the

Corporation has been amended by striking out the whole of Article VIII thereof  

as it now exists and inserting in lieu and instead thereof a new Article VIII   

reading as follows:                                                             

ARTICLE VIII

 MANAGEMENT OF THE CORPORATION

           8.1 Except as otherwise provided herein, the business and affairs
of the Corporation shall be managed by or under the direction of the Board of   
Directors. The Board of Directors shall be divided into three classes: Class I, 
Class II and Class III. The classes shall be as nearly equal in number as the   
then total number of directors constituting the entire Board of Directors       
permits, with the three-year term of service of each class staggered to expire  
in successive years. The directors shall be assigned to a class at the time of  
their election.                                                                 

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           Initially, the directors in Class I and Class II will hold office
for one and two-year terms, respectively. The directors appointed to Class I    
shall initially serve one-year terms and shall be eligible for re-election for  
full three-year terms at the Corporation's annual meeting of stockholders to be 
held in 2002. The directors appointed to Class II shall initially serve two-year
terms and shall be eligible for re-election for full three-year terms at the    
annual meeting of stockholders to be held in 2003. The directors appointed to   
Class III shall initially serve full three-year terms and shall be eligible for 
re-election for new three-year terms at the annual meeting of stockholders to be
held in 2004. At each annual meeting of stockholders, the successors to the     
class of directors whose term shall then expire shall be elected to hold office 
for a term expiring at the third succeeding annual meeting of stockholders and  
each director so elected shall hold office until his successor is elected and   
qualified, or until his earlier resignation or removal. If the number of        
directors is changed, any increase or decrease in the number of directors shall 
be apportioned among the three classes so as to make all classes as nearly equal
in number as possible, and the Board of Directors shall decide which class shall
contain an unequal number of directors.                                         

           8.2 Except to the extent necessary to implement the provisions of
the stockholders' agreement (the "Stockholders' Agreement"), dated as of October
1, 1998, among Avi Arad, the various Dickstein entities and individuals listed  
on the signature pages thereto, Isaac Perlmutter, Isaac Perlmutter T.A., the    
Laura & Isaac Perlmutter Foundation Inc., Object Trading Corp., Zib Inc., The   
Chase Manhattan Bank, Morgan Stanley & Co. Incorporated, Whippoorwill           
Associates, Incorporated, and the Corporation, as such agreement is in effect on
September 30, 2001, any vacancies in the Board of Directors for any reason, and 
any directorships resulting from any increase in the number of directors, may be
filled only by the Board of Directors, acting by a majority of the directors    
then in office (even though such number of directors may constitute less than a 
quorum) and any directors so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and until their       
successors shall be elected and qualified.                                      

            8.3 Election of directors need not be by written ballot unless the
By-Laws so provide.                                                             

          8.4 The Board of Directors shall have the power to adopt, amend,
and repeal the By-Laws of the Corporation.                                      

         8.5 The stockholders and directors shall have the power, if the
By-Laws so provide, to hold their respective meetings within or without the     
State of Delaware and may (except as otherwise required by law) keep the        
Corporation's books outside the State of Delaware, at such places as from time  
to time may be designated by the By-Laws or the Board of Directors.             

             8.6 Subject to the rights of the holders of any series of Preferred
Stock with respect to such series of Preferred Stock and except to the extent   
necessary to                                                                    

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implement the provisions of the Stockholders' Agreement (as in effect on        
September 30, 2001), any action required or permitted to be taken by the        
stockholders of the Corporation must be effected at a meeting of stockholders of
the Corporation and may not be effected by any consent in writing by such       
stockholders.                                                                   

       8.7 Notwithstanding anything to the contrary contained in the
By-Laws, a special meeting of the stockholders for any purpose or purposes may  
be called at any time or from time to time by the Chief Executive Officer or    
Chairman of the Board of Directors, and shall be called at any time or from time
to time at the request in writing of a majority of the total number of directors
in office. Except as provided in the immediately following sentence of this     
Section 8.7, special meetings may not be called by any other person or persons. 
Solely for the purposes of implementing the provisions of the Stockholders'     
Agreement (as in effect on September 30, 2001), a special meeting shall also be 
called by the Chief Executive Officer or the Secretary upon the written request 
of not less than 15% in interest of the stockholders entitled to vote thereat.  
At any special meetings, no business shall be transacted and no corporate action
shall be taken other than as stated in the notice of the meeting.               

            8.8 In addition to the powers and authority hereinbefore conferred
upon them, the directors are hereby empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation,        
subject, nevertheless, to the provisions of the GCL, this Certificate of        
Incorporation, and the By-Laws; provided, however, that no By-Laws hereafter    
adopted shall invalidate any prior act of the directors which would have been   
valid if such By-Laws had not been adopted.                                     

         SECOND: That such amendment has been duly adopted in accordance

with the provisions of Section 242 of the General Corporation Law of the State  

of Delaware by the vote of the majority of the outstanding stock entitled to    

vote thereon.                                                                   

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             IN WITNESS WHEREOF, I have signed this certificate this ____ day of
____________, 2001.                                                             

                              By:  _________________________
                                   F. Peter Cuneo, President

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Appendix B
Amended and Restated By-Laws

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                                                 EFFECTIVE
                                                        OCTOBER __, 2001

MARVEL ENTERPRISES, INC.

 BY-LAWS

 (as amended and restated)

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 TABLE OF CONTENTS
 -----------------

                                                                            Page
                                                                            ----

ARTICLE 1.  OFFICES............................................................1

       Section 1.1. Registered Office..........................................1

       Section 1.2. Other Offices..............................................1

ARTICLE 2. MEETINGS OF STOCKHOLDERS............................................1

       Section 2.1. Place of Meetings..........................................1

       Section 2.2. Annual Meetings............................................1

       Section 2.3. Special Meetings...........................................2

       Section 2.4. Notice of Meetings.........................................2

       Section 2.5. Quorum.....................................................2

       Section 2.6. Notice of Stockholder Business and Nominations.............3

       Section 2.7. Organization...............................................5

       Section 2.8. Voting.....................................................5

       Section 2.9. No Stockholder Action by Written Consent...................6

       Section 2.10. Inspectors................................................6

       Section 2.11. List of Stockholders......................................7

ARTICLE 3. BOARD OF DIRECTORS..................................................7

       Section 3.1. Number of Directors........................................7

       Section 3.2. General Powers.............................................7

       Section 3.3. Election and Qualifications................................8

       Section 3.4. Classes of Directors.......................................9

       Section 3.5. Terms of Office............................................9

       Section 3.6. Quorum and Manner of Acting................................9

       Section 3.7. Action by Communications Equipment.........................9

       Section 3.8. Offices, Place of Meeting and Records.....................10

       Section 3.9. Annual Meeting............................................10

       Section 3.10. Regular Meetings.........................................10

       Section 3.11. Special Meetings; Notice.................................10

       Section 3.12. Organization.............................................10

       Section 3.13. Order of Business........................................11

       Section 3.14. Removal of Directors.....................................11

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 (continued)

                                                                            Page
                                                                            ----

       Section 3.15. Resignation..............................................11

       Section 3.16. Vacancies................................................11

       Section 3.17. Compensation.............................................11

       Section 3.18. Interested Directors.....................................11

ARTICLE 4. ACTION BY CONSENT..................................................12

       Section 4.1. Consent by Directors......................................12

       Section 4.2. Consent by Stockholders...................................12

ARTICLE 5. OFFICERS...........................................................12

       Section 5.1. Number....................................................12

       Section 5.2. Election, Qualifications and Term of Office...............13

       Section 5.3. Removal...................................................13

       Section 5.4. Resignation...............................................13

       Section 5.5. Vacancies.................................................13

       Section 5.6. Chairman of the Board.....................................13

       Section 5.7. Chief Executive Officer...................................13

       Section 5.8. President.................................................13

       Section 5.9. Chief Financial Officer...................................13

       Section 5.10. Treasurer................................................14

       Section 5.11. Secretary................................................14

       Section 5.12. Other Officers...........................................14

       Section 5.13. Salaries.................................................14

ARTICLE 6. INDEMNIFICATION, ETC...............................................15

       Section 6.1. Indemnification and Advances of Expenses..................15

       Section 6.2. Employees and Agents......................................16

       Section 6.3. Repeal or Modification....................................16

       Section 6.4. Other Indemnification.....................................16

ARTICLE 7. CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC......................16

       Section 7.1. Execution of Contracts....................................16

       Section 7.2. Loans.....................................................16

       Section 7.3. Checks, Drafts, etc.......................................17

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 (continued)

                                                                            Page
                                                                            ----

       Section 7.4. Deposits..................................................17

       Section 7.5. Proxies in Respect of Securities of Other Corporations....17

ARTICLE 8. BOOKS AND RECORDS..................................................17

       Section 8.1. Place.....................................................17

       Section 8.2. Addresses of Stockholders.................................17

       Section 8.3. Record Dates..............................................18

       Section 8.4. Audit of Books and Accounts...............................18

ARTICLE 9. SHARES AND THEIR TRANSFER..........................................18

       Section 9.1. Certificates of Stock.....................................18

       Section 9.2. Record....................................................18

       Section 9.3. Transfer of Stock.........................................19

       Section 9.4. Transfer Agent and Registrar; Regulations.................19

       Section 9.5. Lost, Destroyed or Mutilated Certificates.................19

ARTICLE 10. SEAL..............................................................19

ARTICLE 11. FISCAL YEAR.......................................................19

ARTICLE 12. NOTICE............................................................20

       Section 12.1. Delivery of Notices......................................20

       Section 12.2. Waivers of Notice........................................20

ARTICLE 13. AMENDMENTS........................................................20

       Section 13.1. By-Laws..................................................20

ARTICLE 14. DIVIDENDS.........................................................20

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MARVEL ENTERPRISES, INC.

 By-Laws

 (as amended and restated)

ARTICLE 1.

 OFFICES
 -------

   Section 1.1. Registered Office. The registered office and
registered agent of the Corporation in the State of Delaware shall be as set    
forth in the Corporation's Certificate of Incorporation.                        

             Section 1.2. Other Offices. The Corporation may also have an office
at such other place or places either within or without the State of Delaware    
from time to time as the Board of Directors may determine or the business of the
Corporation may require.                                                        

ARTICLE 2.

MEETINGS OF STOCKHOLDERS
------------------------

             Section 2.1. Place of Meetings. All meetings of the stockholders of
the Corporation shall be held at such place either within or without the State  
of Delaware as may be designated from time to time by the Board of Directors.   

Section 2.2. Annual Meetings.                         

        (a) The annual meeting of the stockholders for the election of
directors and for the transaction of such other business as may properly come   
before the meeting shall be held at such date, time and place either within or  
without the State of Delaware, as may be designated by the Board of Directors   
from time to time.                                                              

          (b) In respect of the annual meeting for any particular year the
Board of Directors may, by resolution fix a different day, time or place (either
within or without the State of Delaware) for the annual meeting.                

             (c) If the election of directors shall not be held on the day fixed
by the Board for any annual meeting, or on the day of any adjourned session     
thereof, the Board of Directors shall cause the election to be held at a special
meeting as soon thereafter as conveniently may be. At such special meeting, the 
stockholders may elect the directors and transact such other business properly  
before the meeting with the same force and effect as at an annual meeting duly  
called and held.                                                                

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 Section 2.3. Special Meetings. A special meeting of the
stockholders for any purpose or purposes may be called at any time or from time 
to time by the Chief Executive Officer or Chairman of the Board, and shall be   
called at any time or from time to time at the request in writing of a majority 
of the total number of directors in office. A special meeting shall also be     
called by the Chief Executive Officer or the Secretary upon the written request 
of not less than 15% in interest of the Stockholders entitled to vote thereat.  
At any special meeting, no business shall be transacted and no corporate action 
shall be taken other than as stated in the notice of the meeting.               

Section 2.4. Notice of Meetings.                      

       (a) Except as otherwise required by law or the Certificate of
Incorporation, written notice of each annual or special meeting of the          
stockholders shall be given to each stockholder of record entitled to vote at   
such meeting not less than ten days nor more than sixty days before the date of 
such meeting. Every such notice shall state the date, time and place of the     
meeting and, in case of a special meeting, shall state briefly the purposes     
thereof.                                                                        

       (b) Attendance of a stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such    
stockholder attends a meeting for the express purpose of objecting, at the      
beginning of the meeting, to the transaction of any business on the grounds that
the meeting is not lawfully called or convened. Notice of any adjourned meeting 
of the stockholders shall not be required to be given except by announcement at 
the meeting so adjourned or when expressly required by law.                     

Section 2.5. Quorum.                                  

         (a) At each meeting of the stockholders, except where otherwise
provided by law, the Certificate of Incorporation or these By-Laws, the holders 
of record of a majority in voting power of the issued and outstanding shares of 
stock of the Corporation entitled to vote at such meeting, present in person or 
represented by proxy, shall be required to constitute a quorum for the          
transaction of business. Where a separate vote by class or classes or one or    
more series of a class or classes of stock is required by law or the Certificate
of Incorporation for any matter, the holders of a majority in voting power of   
the issued and outstanding shares of each such class or classes or one or more  
series of a class or classes entitled to vote, present in person or represented 
by proxy, shall be required to constitute a quorum with respect to a vote on    
that matter, except that where the unanimous affirmative vote or written consent
of all of the holders of the outstanding shares of a class or classes of stock  
is required by the Certificate of Incorporation with respect to any matter, all 
of the holders of the outstanding shares of such class or classes entitled to   
vote, present in person or by proxy, shall be required to constitute a quorum   
with respect to a vote on that matter. For purposes of these By-Laws, the term  
"total voting power" shall mean, (a) in the case of matters which do not require
a separate vote by class or classes or one or more series of a class or classes 
of stock, the aggregate number of votes which all of the shares of stock,       
excluding the votes of shares of stock having such entitlement only upon the    
happening of a contingency, would be entitled to cast in the election of        
directors to the Board of Directors, if all such shares of stock were present at
a meeting of the Corporation's stockholders for the purpose of the election of  
directors, and (b) in the case of matters which do require a separate vote by   
class or classes or one or more series of a class or classes of stock, the      

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aggregate number of votes which all of the shares of such class or classes or   
one or more series of a class or classes of stock, excluding the votes of shares
of stock having such entitlement only upon the happening of a contingency, would
be entitled to cast on any such matter, if all of the shares of such class or   
classes or one or more series of a class or classes of stock were present and   
voted at a meeting of the Corporation's stockholders for the purpose of         
stockholder action on such matter.                                              

            (b) In the absence of a quorum at any annual or special meeting of
stockholders, a majority in total voting power of the shares of stock entitled  
to vote, or in the case of matters requiring a separate vote by any class or    
classes or one or more series of a class or classes of stock, a majority in     
total voting power of the shares of each such class or classes or one or more   
series of a class or classes entitled to vote, present in person or represented 
by proxy or, in the absence of all such stockholders, any person entitled to    
preside at or act as secretary of such meeting, shall have the power to adjourn 
the meeting from time to time, if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. At any such adjourned meeting 
at which a quorum shall be present, any business may be transacted which might  
have been transacted at the meeting as originally called. If the adjournment is 
for more than thirty days, or if after the adjournment a new record date is     
fixed for the adjourned meeting, a notice of the adjourned meeting shall be     
given to each stockholder of record entitled to vote at the meeting.            

      Section 2.6. Notice of Stockholder Business and Nominations.

             (a) Annual Meetings of Stockholders. (i) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of       
business to be considered by the stockholders may be made at an annual meeting  
of stockholders (A) pursuant to the Corporation's notice of meeting, (B) by or  
at the direction of the Board of Directors or (C) by any stockholder of the     
Corporation who was a stockholder of record at the time of giving of notice     
provided for in this By-Law, who is entitled to vote at the meeting and who     
complies with the notice procedures set forth in this By-Law.                   

       (ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of paragraph   
(a)(i) of this By-Law, the stockholder must have given timely notice thereof in 
writing to the Secretary of the Corporation and such other business must        
otherwise be a proper matter for stockholder action. To be timely, a            
stockholder's notice shall be delivered to the Secretary at the principal       
executive offices of the Corporation not later than the close of business on the
60th day prior to the first anniversary of the preceding year's annual meeting; 
provided, however, that in the event that the date of the annual meeting is more
than 30 days before or after such anniversary date, notice by the stockholder to
be timely must be so delivered not later than the close of business on the later
of the 60th day prior to such annual meeting or the 10th day following the day  
on which public announcement of the date of such meeting is first made by the   
Corporation. In no event shall the public announcement of an adjournment of an  
annual meeting commence a new time period for the giving of a stockholder's     
notice as described above. Such stockholder's notice shall set forth (A) as to  
each person whom the stockholder proposes to nominate for election or           
re-election as a director all information relating to such person that is       
required to be disclosed in solicitations of proxies for election of directors  
in an election contest, or is otherwise required, in each case                  

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pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a  
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be  
brought before the meeting, the reasons for conducting such business at the     
meeting and any material interest in such business of such stockholder and the  
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to   
the stockholder giving the notice and the beneficial owner, if any, on whose    
behalf the nomination or proposal is made (x) the name and address of such      
stockholder, as they appear on the Corporation's books, and of such beneficial  
owner and (y) the class and number of shares of the Corporation which are owned 
beneficially and of record by such stockholder and such beneficial owner.       

            (iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this By-Law to the contrary, in the event that the number of         
directors to be elected to the Board of Directors of the Corporation is         
increased and there is no public announcement by the Corporation naming all of  
the nominees for director or specifying the size of the increased Board of      
Directors at least 70 days prior to the first anniversary of the preceding      
year's annual meeting, a stockholder's notice required by this By-Law shall also
be considered timely, but only with respect to nominees for any new positions   
created by such increase, if it shall be delivered to the Secretary at the      
principal executive offices of the Corporation not later than the close of      
business on the 10th day following the day on which such public announcement is 
first made by the Corporation.                                                  

           (b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of     
persons for election to the Board of Directors may be made at a special meeting 
of stockholders at which directors are to be elected pursuant to the            
Corporation's notice of meeting (i) by or at the direction of the Board of      
Directors or (ii) provided that the Board of Directors has determined that      
directors shall be elected at such meeting, by any stockholder of the           
Corporation who is a stockholder of record at the time of giving of notice      
provided for in this By-Law, who shall be entitled to vote at the meeting and   
who complies with the notice procedures set forth in this By-Law. In the event  
the Corporation calls a special meeting of stockholders for the purpose of      
electing one or more directors to the Board of Directors, any such stockholder  
may nominate a person or persons (as the case may be),for election to such      
position(s) as specified in the Corporation's notice of meeting, if the         
stockholder's notice required by paragraph (a)(ii) of this By-Law shall be      
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 90th day prior to such special    
meeting and not later than the close of business on the later of the 60th day   
prior to such special meeting or the 10th day following the day on which public 
announcement is first made of the date of the special meeting and of the        
nominees proposed by the Board of Directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting      
commence a new time period for the giving of a stockholder's notice as described
above.                                                                          

            (c) General. (i) Only such persons who are nominated in accordance
with the procedures set forth in this By-Law shall be eligible to serve as      
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the                                           

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meeting in accordance with the procedures set forth in this By-Law. Except as   
otherwise provided by law, the Certificate of Incorporation or these By-Laws,   
the Chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in    
this By-Law and, if any proposed nomination or business is not in compliance    
with this By-Law, to declare that such defective proposal or nomination shall be
disregarded.                                                                    

            (ii) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13, 
14 or 15(d) of the Exchange Act.                                                

          (iii) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange  
Act and the rules and regulations thereunder with respect to the matters set    
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any      
rights (i) of stockholders to request inclusion of proposals in the             
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or  
(ii) of the holders of any series of Preferred Stock to elect directors under   
specified circumstances.                                                        

             Section 2.7. Organization. At each meeting of the stockholders, the
Chairman of the Board or in his absence, the Chief Executive Officer, or in his 
absence, the President or any other officer designated by the Board, shall act  
as chairman of and preside over the meeting, and the Secretary or an Assistant  
Secretary of the Corporation, or any other person whom the chairman of such     
meeting shall appoint, shall act as secretary of the meeting and keep the       
minutes thereof.                                                                

Section 2.8. Voting.                                  

          (a) Except as otherwise provided by law or by the Certificate of
Incorporation or these By-Laws, at every meeting of the stockholders or in the  
case of any written consent of stockholders, and for all other purposes, each   
holder of record of shares of Common Stock on the relevant record date shall be 
entitled to one (1) vote for each share of Common Stock standing in such        
person's name on the stock transfer records of the Corporation. If no such      
record date shall have been fixed by the Board, then the record date shall be as
fixed by applicable law.                                                        

       (b) Persons holding a share or shares of stock in a fiduciary
capacity shall be entitled to vote the share or shares so held and to consent in
writing with respect to such share or shares. If shares of stock stand of record
in the names of two or more persons, or if two or more persons have the same    
fiduciary relationship respecting the same shares of stock, such persons may    
designate in writing one or more of their number to represent such stock and    
vote the shares so held, unless there is a provision to the contrary in the     
instrument or order, if any, defining their powers and duties, appointing them, 
or creating their relationship, and a copy of such instrument or order is       
furnished to the Secretary of the Corporation along with written notice to the  
contrary.                                                                       

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          (c) Persons whose stock is pledged shall be entitled to vote the
pledged shares, unless in the transfer by the pledgor on the books of the       
Corporation the pledgor has expressly empowered the pledgee to vote thereon, in 
which case only the pledgee, or his proxy, may represent such stock and vote    
thereon.                                                                        

            (d) Any stockholder entitled to vote may do so in person or by his
proxy appointed by an instrument in writing subscribed by such stockholder or by
his attorney thereunto authorized, delivered to the secretary of the meeting;   
provided, however, that no proxy shall be voted after three years from its date,
unless said proxy provides for a longer period. The provisions of this          
subsection 2.8(d) are not intended to and do not limit the manner in which a    
stockholder may authorize another person or persons to act for him as proxy.    

      (e) At all meetings of the stockholders at which a quorum is
present, except as otherwise provided by law or by the Certificate of           
Incorporation or these By-Laws, all matters shall be decided by the affirmative 
vote of the holders of a majority in voting power of the shares entitled to vote
thereon and present in person or represented by proxy at such meeting, voting as
a single class. Except as otherwise provided by the Certificate of              
Incorporation, where a separate vote by class or classes or one or more series  
of a class or classes of stock is required for any matter, such matters shall be
decided by the affirmative vote of the holders of a majority in voting power of 
the shares of each such class or classes or one or more series of a class or    
classes entitled to vote thereon and present in person or represented by proxy  
at such meeting, a quorum being present. Except as otherwise provided by the    
Certificate of Incorporation or these By-Laws, directors shall be elected by the
affirmative vote of a plurality in voting power of the shares present in person 
or represented by proxy and entitled to vote for the election of directors at a 
meeting at which a quorum is present.                                           

           Section 2.9. No Stockholder Action by Written Consent. Subject to
the rights of the holders of any series of Preferred Stock with respect to such 
series of Preferred Stock, any action required or permitted to be taken by the  
stockholders of the Corporation must be effected at a meeting of stockholders of
the Corporation and may not be effected by any consent in writing by such       
stockholder.                                                                    

            Section 2.10. Inspectors. The Corporation shall, in advance of any
meeting of the stockholders, appoint one or more inspector to act at the meeting
of the stockholders and make a written report thereof. Such inspectors, among   
other things, shall accept and count the votes for and against the matters      
presented for a vote, make a written report of the results of such votes, and   
subscribe and deliver to the secretary of the meeting a certificate stating the 
number of shares of stock issued and outstanding and entitled to vote thereon   
and the number of shares voted for and against the questions presented. If no   
inspector or alternate is able to act at a meeting of stockholders, the chairman
of the meeting shall appoint one or more inspectors to act at the meeting. The  
inspectors need not be stockholders of the Corporation, and any director or     
officer of the Corporation may be an inspector on any matter subject to a vote  
other than a vote for or against his election to any position or office on or   
with the Board or the Corporation or on any other matter subject to a vote in   
which he may be directly interested. Before entering upon the discharge of any  
of his duties as such, each inspector shall subscribe an oath faithfully to     
execute the duties of an inspector with strict impartiality and according to the
best of his ability.                                                            

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Section 2.11. List of Stockholders.                   

           (a) It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make, or   
cause to be prepared and made, at least ten days before every meeting of the    
stockholders, a complete list of the stockholders entitled to vote thereat,     
arranged in alphabetical order and showing the address of each stockholder and  
the number of shares registered in the name of each stockholder. Such list shall
be open during ordinary business hours to the examination of any stockholder for
any purpose germane to the meeting for a period of at least ten days prior to   
the meeting, either at a place within the city where the meeting is to be held, 
which place shall be specified in the notice of the meeting or, if not so       
specified, at the place where the meeting is to be held.                        

           (b) Such list shall be produced and kept at the time and place of
the meeting during the whole time thereof and may be inspected by any           
stockholder who is present.                                                     

             (c) The stock ledger shall be the conclusive evidence as to who are
the stockholders entitled to examine the stock ledger, and the list of          
stockholders required by this Section 2.11, or the books of the Corporation, or 
to vote in person or by proxy at any meeting of stockholders.                   

ARTICLE 3.

BOARD OF DIRECTORS
------------------

         Section 3.1. Number of Directors. The number of Directors which
shall constitute the entire Board of Directors shall be no fewer than eight (8) 
and no more than eleven (11).                                                   

Section 3.2. General Powers.                          

(a) Except as otherwise provided in the Certificate of
Incorporation, the business, property, policies, and affairs of the Corporation 
shall be managed by or under the direction of the Board of Directors.           

   (b) Compensation and Nominating, Audit, Finance and Other
Committees. The Board of Directors may, by resolution adopted by a majority of  
the Board (i) designate a Compensation and Nominating Committee to exercise,    
subject to applicable provisions of law, the functions regularly administered by
committees of such type including, without limitation, the power to review and  
recommend to the Board the compensation and benefit arrangements for the        
officers of the Corporation, the administering of the stock option plans and    
executive compensation programs of the Corporation, including bonus and         
incentive plans applicable to officers and key employees of the Corporation and 
to recommend to the Board nominees for election as Directors, (ii) designate an 
Audit Committee to exercise, subject to applicable provisions of laws, the      
functions regularly administered by committees of such type including, without  
limitation, (A) to review the professional services and independence of the     
Corporation's independent auditors and the scope of the annual external audit as
recommended by the independent auditors, (B) to ensure that the scope of the    
annual external audit by the independent auditors of the Corporation is         
sufficiently comprehensive, (C) to review, in consultation with the             

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independent auditors and the internal auditors, the plan and results of the     
annual external audit, the adequacy of the Corporation's internal control       
systems and the results of the Corporation's internal audits, (D) to review with
management and the independent auditors, the Corporation's annual financial     
statements, financial reporting practices and the results of each external      
audit, and (E) to consider the qualification of the Corporation's independent   
auditors, to make recommendations to the Board as to their selection and to     
review the relationship between such independent auditors and management, (iii) 
designate a Finance Committee to exercise, subject to applicable provisions of  
law, the functions regularly administered by committees of such type including, 
without limitation, to make recommendations to the Board with respect to the    
Corporation's credit arrangements, the issuance of equity and long term debt    
instruments and other financial matters, and (iv) by resolution similarly       
adopted, designate one or more other committees. The Compensation and Nominating
Committee, the Audit Committee, the Finance Committee and each such other       
committee shall consist of five or more directors of the Corporation. The Board 
may designate one or more directors as alternate members of any committee, who  
may replace any absent or disqualified member at any meeting of the committee.  
Any such committee, other than the Compensation and Nominating Committee, Audit 
Committee and Finance Committee (the powers of which are expressly provided for 
herein), may to the extent permitted by law exercise such powers and shall have 
such responsibilities as shall be specified in the designating resolution. In   
the absence or disqualification of any member of such committee or committees,  
the member or members thereof present at any meeting and not disqualified from  
voting, whether or not constituting a quorum, may unanimously appoint another   
member of the Board to act at the meeting in the place of any such absent or    
disqualified member. Under no circumstances may the committee members, in their 
capacities as such, appoint another director to act in the place of such absent 
or disqualified member. In the event that, and for so long as, there are no duly
appointed members, no duly designated alternate members, and no duly appointed  
replacement members of one (1) or more committees of the Board, the powers and  
authority that otherwise would be delegated to and exercised by such committee  
shall be reserved to and exercised by the Board.                                

          A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide. Notice
of such meetings shall be given to each member of the committee in the manner   
provided for in Section 3.10 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such 
committee. Nothing herein shall be deemed to prevent the Board from appointing  
one or more committees consisting in whole or in part of persons who are not    
directors of the Corporation; provided, however, that no such committee shall   
have or may exercise any authority of the Board.                                

       Each committee of the Board shall keep regular minutes of its
proceedings and report the same to the Board when so requested by the Board. Any
such committee shall fix its own rules of procedure, subject to the approval of 
the Board and the provisions of the Certificate of Incorporation and of these   
By-Laws.                                                                        

       Section 3.3. Election and Qualifications. Except as otherwise
provided in the Certificate of Incorporation, the directors shall be elected by 
the stockholders at the annual meeting of stockholders. A director need not be a
stockholder.                                                                    

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            Section 3.4. Classes of Directors. The Board shall be divided into
three classes: Class I, Class II and Class III. The classes shall be as nearly  
equal in number as the then total number of directors constituting the entire   
Board permits. If the number of directors is changed, any increase or decrease  
in the number of directors shall be apportioned among the three classes so as to
make all classes as nearly equal in number as possible, and the Board shall     
decide which class shall contain an unequal number of directors. The directors  
shall be assigned to a class at the time of their election.                     

           Section 3.5. Terms of Office. Initially, the directors in Class I
and Class II will hold office for one and two-year terms, respectively. The     
directors appointed to Class I shall initially serve one-year terms and shall be
eligible for re-election for full three-year terms at the Corporation's annual  
meeting of stockholders to be held in 2002. The directors appointed to Class II 
shall initially serve two-year terms and shall be eligible for re-election for  
full three-year terms at the annual meeting of stockholders to be held in 2003. 
The directors appointed to Class III shall initially serve full three-year terms
and shall be eligible for re-election for new three-year terms at the annual    
meeting of stockholders to be held in 2004. At each annual meeting of           
stockholders, the successors to the class of directors whose term shall then    
expire shall be elected to hold office for a term expiring at the third         
succeeding annual meeting of stockholders and each director so elected shall    
hold office until his successor is elected and qualified, or until his earlier  
resignation or removal.                                                         

Section 3.6. Quorum and Manner of Acting.             

     (a) Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, a majority of the whole Board shall be required 
to constitute a quorum for the transaction of business at any meeting of the    
Board, and the affirmative vote of a majority of the directors present at any   
meeting of the Board at which a quorum is present shall be required for the     
taking of any action by the Board. Except as otherwise provided by law, the     
Certificate of Incorporation, or By-Laws, a majority of the total number of     
members of any committee of the Board shall be required to constitute a quorum  
for the transaction of business at any meeting of such committee, and the       
affirmative vote of a majority of the members of any committee of the Board     
present at any meeting of such committee at which a quorum is present shall be  
required for the taking of any action by such committee.                        

       (b) In the absence of a quorum at any meeting of the Board of
Directors or of any committee of the Board, such meeting need not be held; or a 
majority of the directors or committee members, as the case may be, present     
thereat or, if no director or committee member be present, the Secretary, may   
adjourn such meeting from time to time until a quorum shall be present. Notice  
of any adjourned meeting need not be given except by announcement at the meeting
at which the adjournment is taken.                                              

            Section 3.7. Action by Communications Equipment. The directors may
participate in a meeting of the Board or any committee thereof by means of      
conference telephone or similar communications equipment by means of which all  
persons participating in the meeting can hear each other, and such participation
shall constitute presence in person at such meeting.                            

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           Section 3.8. Offices, Place of Meeting and Records. The Board and
any committee of the Board may hold meetings and have an office or offices at   
such place or places within or without the State of Delaware as the Board or    
such committee, as the case may be, may from time to time determine. The place  
of meeting shall be as from time to time designated by the Board or such        
committee, as the case may be, or as specified or fixed in the respective       
notices or waivers of notice thereof, except where no notice of such meeting is 
required, and except as otherwise provided by law, by the Certificate of        
Incorporation or these By-Laws.                                                 

           Section 3.9. Annual Meeting. The Board shall meet for the purpose
of organization, the election of principal officers and the transaction of other
business, if a quorum be present, immediately following each annual election of 
directors by the stockholders; or the time and place of such meeting may be     
fixed by a majority of the total number of directors in office.                 

           Section 3.10. Regular Meetings. Regular meetings of the Board and
committees of the Board shall be held at such places and at such times as the   
Board or such committee, as the case may be, shall from time to time determine. 
Notice of regular meetings need not be given.                                   

         Section 3.11. Special Meetings; Notice. Special meetings of the
Board of Directors shall be held whenever called by the Chief Executive Officer 
or Chairman of the Board or by a majority of the total number of directors in   
office. Special meetings of committees of the Board shall be held whenever      
called by the Chief Executive Officer or Chairman of the Board, a majority of   
the total number of directors in office or a majority of the members of such    
committee. Notice of each such meeting shall be mailed to each director or      
committee member, as the case may be, addressed to him at his usual place of    
business at least ten days before the day on which the meeting is to be held, or
shall be sent to him at such place of business by facsimile transmission or     
other available means, or delivered personally or by telephone not later than 24
hours before the day on which the meeting is to be held. Each such notice shall 
state the time and place of the meeting and the purpose thereof. Notice of any  
such meeting need not be given to any director or committee member, as the case 
may be, however, if waived by him in writing, whether before or after such      
meeting shall be held, or if he shall be present at such meeting other than for 
the express purpose of objecting, at the beginning of the meeting, to the       
transaction of any business because the meeting is not lawfully called or       
convened.                                                                       

     Section 3.12. Organization. At each meeting of the Board of
Directors, the Chairman of the Board or, in his absence, a director chosen by a 
majority of the directors present shall act as chairman of and preside over the 
meeting. At each meeting of any committee of the Board, the Chairman of the     
Board, if he be a member of such committee, or in his absence, the member of    
such committee designated as chairman of such committee by the Board, or in the 
absence of such designation or such designated chairman, a member of such       
committee chosen by a majority of the members of such committee present, shall  
act as chairman of and preside over the meeting. The Secretary or, in his       
absence an Assistant Secretary or, in the absence of the Secretary and all      
Assistant Secretaries, a person whom the chairman of such meeting shall appoint,
shall act as secretary of such meeting and keep the minutes thereof.            

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          Section 3.13. Order of Business. At all meetings of the Board of
Directors and committees of the Board, business shall be transacted in the order
determined by the chairman of such meeting.                                     

             Section 3.14. Removal of Directors. Except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws, any director or the     
entire Board may be removed, either with or without cause, at any time and from 
time to time, by the affirmative vote or written consent of a majority in voting
power of the shares of the capital stock of the Corporation then entitled to    
vote for the election of directors of the Corporation.                          

        Section 3.15. Resignation. Any director of the Corporation may
resign at any time by giving written notice of his resignation to the Board, the
Chief Executive Officer, President or Chairman of the Board, or the Secretary of
the Corporation. Such resignation shall take effect at the date of receipt of   
such notice or at any later time specified therein; and, unless otherwise       
specified therein, the acceptance of such resignation shall not be necessary to 
make it effective.                                                              

      Section 3.16. Vacancies. Except as otherwise provided in the
Certificate of Incorporation, vacancies on the Board, caused by death,          
resignation, removal, disqualification, or other cause, and newly created       
directorships resulting from any increase in the authorized number of directors,
may be filled by a majority action of the remaining directors then in office,   
though less than a quorum, or by election upon the vote of the stockholders of  
the Corporation at the next annual meeting or any special meeting called for    
such purpose or upon action of the stockholders of the Corporation taken by     
written consent, and each director so elected to fill any such vacancy or newly 
created directorship shall hold office until the next annual election of        
directors and until his successor shall be duly elected and qualified or until  
his death or until he shall resign or until he shall have been removed or       
disqualified.                                                                   

            Section 3.17. Compensation. Each director, in consideration of his
serving as such, shall be entitled to receive from the Corporation such amount  
per annum or such fees for attendance at directors' meetings, or both, as the   
Board shall from time to time determine, together with reimbursement for the    
reasonable expenses incurred by him in connection with the performance of his   
duties; provided that nothing herein contained shall be construed to preclude   
any director from serving the Corporation or its subsidiaries in any other      
capacity and receiving proper compensation therefor.                            

        Section 3.18. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other    
organization in which one or more of its directors or officers are directors or 
officers, or have a financial interest, that is otherwise duly authorized in    
accordance with the provisions of the Certificate of Incorporation, shall be    
void or voidable solely for this reason, or solely because the director or      
officer is present at or participates in the meeting of the Board or committee  
thereof which authorizes the contract or transaction, or solely because his or  
their votes are counted for such purpose, if (i) the material facts as to his or
their relationship or interest and as to the contract or transaction are        
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative vote of 
a majority of the disinterested directors,                                      

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even though the disinterested directors be less than a quorum; or (ii) the      
material facts as to his or their relationship or interest and as to the        
contract or transaction are disclosed or are known to the stockholders entitled 
to vote thereon, and the contract or transaction is specifically approved in    
good faith by vote of the stockholders; or (iii) the contract or transaction is 
fair as to the Corporation as of the time it is authorized, approved or         
ratified, by the Board, a committee thereof or the stockholders. Common or      
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board or of a committee which authorizes the contract or         
transaction.                                                                    

ARTICLE 4.

 ACTION BY CONSENT
 -----------------

             Section 4.1. Consent by Directors. Unless otherwise provided in the
Certificate of Incorporation or these By-Laws, any action required or permitted 
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting, without prior notice and without a vote if a written consent 
thereto is signed by all members of the Board or of such committee, as the case 
may be, and such written consent or consents is filed with the minutes of the   
proceedings of the Board or such committee.                                     

            Section 4.2. Consent by Stockholders. Unless otherwise provided in
the Certificate of Incorporation or these By-Laws, any action required or       
permitted to be taken at any meeting of the stockholders may be taken without a 
meeting, without prior notice and without a vote upon the delivery to the       
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware, as the same now exists or may hereafter be amended, or the   
provisions of a successor statute ("Section 228"), of a written consent or      
written consents of the holders of outstanding shares of stock having not less  
than the minimum number of votes that would be necessary to authorize or take   
such action at a meeting at which all shares entitled to vote thereon were      
present and voted. Prompt notice of the taking of any corporate action without a
meeting by less than unanimous written consent shall be given to those          
stockholders who have not consented in writing, and any certificate required to 
be filed with the office of the Secretary of State of the State of Delaware with
respect to such matter shall state that written consent has been given in       
accordance with Section 228 and that such written notice has been given.        

ARTICLE 5.

OFFICERS
--------

        Section 5.1. Number. The principal officers of the Corporation
shall be a Chairman of the Board, Chief Executive officer, a President, a Chief 
Financial Officer, a Treasurer and a Secretary. In addition, there may be such  
other or subordinate officers, agents and employees as may be appointed in      
accordance with the provisions of Section 5.12. Any two or more offices may be  
held by the same person, except that the office of Secretary shall be held by a 
person other than the person holding the office of President.                   

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        Section 5.2. Election, Qualifications and Term of Office. Each
officer of the Corporation, except such officers as may be appointed in         
accordance with the provisions of Section 5.12, shall be elected annually by the
Board of Directors and shall hold office until his successor shall have been    
duly elected and qualified, or until his death, or until he shall have resigned 
or shall have been removed.                                                     

          Section 5.3. Removal. Any officer may be removed, either with or
without cause, by the action of the Board of Directors.                         

         Section 5.4. Resignation. Any officer may resign at any time by
giving written notice to the Board of Directors, or the Chairman of the Board,  
the Chief Executive Officer, the President or the Secretary of the Corporation. 
Any such resignation shall take effect at the date of receipt of such notice or 
at any later time specified therein; and, unless otherwise specified therein,   
the acceptance of such resignation shall not be necessary to make it effective. 

            Section 5.5. Vacancies. A vacancy in any office under this Article
Five because of death, resignation, removal, disqualification or any other cause
shall be filled for the unexpired portion of the term in the manner prescribed  
in this Article Five for regular election or appointment to such office.        

            Section 5.6. Chairman of the Board. The directors may elect one of
their members to be Chairman of the Board. The Chairman of the Board, as such,  
shall be subject to the control of and may be removed by the Board. The Chairman
of the Board shall be a director and shall preside at all meetings of the Board 
and stockholders. The Chairman of the Board shall have general executive powers 
and such specific powers and duties as from time to time may be conferred or    
assigned by the Board.                                                          

           Section 5.7. Chief Executive Officer. Subject to the direction of
the Board or the Chairman of the Board, the Chief Executive Officer shall be the
chief executive officer of the Corporation, shall have general charge and       
supervision of the business of the Corporation and shall exercise chief         
executive powers and such specific powers and shall perform such duties as from 
time to time may be conferred upon or assigned to him by the Board, the Chairman
of the Board or any committee thereof designated by it to so act. In the absence
of the Chairman of the Board, the Chief Executive Officer shall preside at all  
meetings of the Board and the stockholders.                                     

            Section 5.8. President. The President shall have general executive
powers and such specific powers and shall perform such duties as from time to   
time may be conferred upon or assigned to him by the Board, the Chairman of the 
Board, the Chief Executive Officer, or any committee of the Board designated by 
it to so act.                                                                   

           Section 5.9. Chief Financial Officer. The Chief Financial Officer
shall maintain or cause to be maintained adequate records of all assets,        
liabilities, and transactions of the Corporation and adequate internal          
accounting controls; shall prepare or cause to be prepared such financial       
statements or reports on the Corporation's results of operations or financial   
condition as required by law or directed by the Board; shall insure that        
adequate audits thereof are currently and regularly made; and shall, in         
consultation with the Chief Executive Officer or                                

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the Chairman of the Board, undertake measures and implement procedures designed 
to facilitate or further the foregoing. His duties and powers shall, so far as  
the Chief Executive Officer or the Chairman of the Board may deem practicable,  
extend to all subsidiary corporations.                                          

      Section 5.10. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation,
and shall deposit all such funds to the credit of the Corporation in such banks,
trust companies or other depositories as shall be selected in accordance with   
the provisions of these By-Laws. The Treasurer shall disburse the funds of the  
Corporation as may be ordered by the Board, making proper vouchers for such     
disbursements, and shall render to the Board or the committee of the Board to   
which he reports or the stockholders, whenever the Board may require him so to  
do, a statement of all his transactions as Treasurer and of the financial       
condition of the Corporation; and, in general, he shall perform all the duties  
as from time to time may be assigned to him by the Board, or by the Chief       
Executive Officer or Chairman of the Board. When required by the Board, the     
Treasurer shall give bonds for the faithful discharge of his duties in such sums
and with such sureties as the Board shall approve.                              

            Section 5.11. Secretary. The Secretary shall record or cause to be
recorded in books provided for the purpose the minutes of the meetings of the   
stockholders, the Board, and all committees of which a secretary shall not have 
been appointed; shall see that all notices are duly given in accordance with the
provisions of the Certificate of Incorporation and these By-Laws and as required
by law; shall be custodian of all corporate records (other than financial       
records) and of the seal of the Corporation and see that the seal is affixed to 
all documents the execution of which on behalf of the Corporation under its seal
is duly authorized, in accordance with, and required by, the provisions of these
By-Laws; shall keep, or cause to be kept, the list of stockholders as required  
by Section 2.11 of Article Two of these By-Laws, which shall include the        
post-office addresses of the stockholders and the number of shares held by them,
respectively, and shall make or cause to be made, all proper changes therein;   
shall see that the books, reports, statements, certificates and all other       
documents and records required by law are properly kept and filed; and, in      
general, shall perform all duties incident to the office of Secretary and such  
other duties as may from time to time be assigned to him by the Board, by any   
committee of the Board designated by it to so act, or by the Chief Executive    
Officer or Chairman of the Board. The Secretary shall be appointed by the Chief 
Executive Officer or by the Board of Directors.                                 

           Section 5.12. Other Officers. The Corporation may have such other
officers, agents, and employees as the Board may designate, including without   
limitation, one or more Senior or Executive Vice Presidents, one or more Vice   
Presidents, a Chief Operating Officer, a Senior Legal Officer, a Controller, one
or more Assistant Controllers, one or more Assistant Treasurers, and one or more
Assistant Secretaries, each of whom shall hold such office, for such period,    
have such authority, and perform such duties as the Board, any committee of the 
Board designated by it to so act, or the Chief Executive Officer or Chairman of 
the Board may from time to time determine. The Board may delegate to any        
principal officer the power to appoint or remove any such subordinate officers, 
agents or employees.                                                            

           Section 5.13. Salaries. The salaries of the principal officers of
the Corporation shall be fixed from time to time by the Board or a duly         
designated and constituted committee                                            

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thereof duly empowered and authorized so to act, and none of such officers shall
be prevented from receiving a salary by reason of the fact that he is a director
of the Corporation.                                                             

ARTICLE 6.

 INDEMNIFICATION, ETC.
 ---------------------

       Section 6.1. Indemnification and Advances of Expenses. To the
fullest extent permitted by the General Corporation Law of the State of Delaware
("GCL"), as the same now exists or may hereafter be amended, and, to the extent 
required by the GCL, only as authorized in the specific case upon the making of 
a determination that indemnification of the person is proper in the             
circumstances because he has met the applicable standard of conduct prescribed  
in Sections 145(a) and (b) of the GCL, the Corporation shall indemnify and hold 
harmless any person who was or is a director, officer or incorporator of the    
Corporation from and against any and all expenses (including counsel fees and   
disbursements), judgments, fines (including excise taxes assessed on a person   
with respect to an employee benefit plan), and amounts paid in settlement that  
may be imposed upon or incurred by him in connection with, or as a result of,   
any threatened, pending, or completed proceeding, whether civil, criminal,      
administrative or investigative (whether or not by or in the right of the       
Corporation), in which he is or may become involved, as a party or otherwise, by
reason of the fact that he is or was such a director, officer or incorporator of
the Corporation or is or was serving at the request of the Corporation as a     
director, officer, incorporator, employee, partner, trustee or agent of another 
corporation, partnership, joint venture, trust or other enterprise (including an
employee benefit plan), whether or not he continues to be such at the time such 
expenses and judgments, fines and amounts paid in settlement shall have been    
imposed or incurred. The Corporation shall be required to indemnify such a      
person who is or was a director, officer, or incorporator in connection with a  
proceeding (or part thereof) initiated by such person, however, only if the     
initiation of such proceeding (or part thereof) by such person was authorized by
the Board. Such right of indemnification shall inure whether or not such        
expenses and judgments, fines and amounts paid in settlement are imposed or     
incurred based on matters which antedate the adoption of this Article Six. Such 
right of indemnification shall continue as to a person who has ceased to be a   
director, officer or incorporator of the Corporation, and shall inure to the    
benefit of the heirs and personal representatives of such a person.             

             Expenses incurred by a person who is or was a director, officer, or
incorporator of the Corporation in defending or investigating a threatened or   
pending action, suit or proceeding in which such person is or may become        
involved, as a party or otherwise, by reason of the fact that he is or was a    
director, officer, or incorporator of the Corporation or is or was serving at   
the request of the Corporation as a director, officer, incorporator, employee,  
partner, trustee, or agent of another corporation, partnership, joint venture,  
trust or other enterprise (including an employee benefit plan), shall be paid by
the Corporation in advance of final disposition of such action, suit or         
proceeding upon receipt of an undertaking by or on behalf of such person to     
repay such amount if it shall ultimately be determined that he is not entitled  
to be indemnified by the Corporation under this Article Six or otherwise.       

            The rights to indemnification and advancement of expenses provided
by this Article Six shall not be deemed exclusive of any other rights which are 
or may be provided now                                                          

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or in the future under any provision currently in effect or hereafter adopted of
these By-Laws, by any agreement, by vote of stockholders, by resolution of      
directors, by provision of law or otherwise.                                    

        Section 6.2. Employees and Agents. The Corporation may, to the
extent authorized from time to time by the Board of Directors, provide to       
employees and agents of the Corporation who are not directors, officers or      
incorporators rights to indemnification and advancement of expenses similar to  
those conferred in this Article Six on directors, officers and incorporators of 
the Corporation.                                                                

            Section 6.3. Repeal or Modification. Any repeal or modification of
this Article Six shall not adversely affect any rights to indemnification and   
advancement of expenses of a director, officer or incorporator of the           
Corporation existing pursuant to this Article Six with respect to any acts or   
omissions occurring prior to such repeal or modification.                       

           Section 6.4. Other Indemnification. The Corporation's obligation,
if any, to indemnify any person who is or was serving at its request as a       
director, officer, incorporator, employee, partner, trustee, or agent of another
corporation, partnership, joint venture, trust or other enterprise (including an
employee benefit plan), shall be reduced by any amount such person actually     
receives as indemnification from such other corporation, partnership, joint     
venture, trust or other enterprise.                                             

ARTICLE 7.

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------

     Section 7.1. Execution of Contracts. Unless the Board shall
otherwise determine, the Chief Executive Officer, President or Chairman of the  
Board, any Vice President, the Treasurer or the Secretary may enter into any    
contract or execute any contract or other instrument, the execution of which is 
not otherwise specifically provided for, in the name and on behalf of the       
Corporation. The Board, or any committee designated by it to so act, except as  
otherwise provided in these By-Laws, may authorize any other or additional      
officer or officers or agent or agents of the Corporation to so act, and such   
authority may be general or confined to specific instances. Unless duly         
authorized so to do by the Certificate of Incorporation or by these By-Laws or  
by the Board or by any such committee, no officer, agent or employee shall have 
any power or authority to bind the Corporation by any contract or engagement or 
to pledge its credit or to render it liable pecuniarily for any purpose or to   
any amount.                                                                     

          Section 7.2. Loans. No loan shall be contracted on behalf of the
Corporation, and no evidence of indebtedness shall be issued, endorsed or       
accepted in its name, unless duly authorized by the Board or any committee      
designated by it to so act. Such authority may be general or confined to        
specific instances. When so authorized, the officer or officers thereunto       
authorized may effect loans and advances at any time for the Corporation from   
any bank, trust company or other institution, or from any firm, corporation or  
individual, and for such loans and advances may make, execute and deliver       
promissory notes or other evidences of indebtedness of the Corporation, and,    
when authorized as aforesaid, as security for the payment of any and all loans, 
advances, indebtedness and liabilities of the Corporation, may mortgage, pledge,

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hypothecate or transfer any real or personal property at any time owned or held 
by the Corporation, and to that end execute instruments of mortgage or pledge or
otherwise transfer such property.                                               

        Section 7.3. Checks, Drafts, etc. All checks, drafts, bills of
exchange or other orders for the payment of money, obligations, notes, or other 
evidence of indebtedness, bills of lading, warehouse receipts and insurance     
certificates of the Corporation, shall be signed or endorsed by such officer or 
officers, agent or agents, attorney or attorneys, employee or employees, of the 
Corporation as shall from time to time be determined by resolution of the Board 
or any committee designated by it to so act.                                    

           Section 7.4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation  
in such banks, trust companies or other depositories as the Board or any        
committee designated by it to so act may from time to time designate, or as may 
be designated by any officer or officers or agent or agents of the Corporation  
to whom such power may be delegated by the Board or any committee designated by 
it to so act and, for the purpose of such deposit and for the purposes of       
collection for the account of the Corporation may be endorsed, assigned and     
delivered by any officer, agent or employee of the Corporation or in such other 
manner as may from time to time be designated or determined by resolution of the
Board or any committee designated to so act.                                    

Section 7.5. Proxies in Respect of Securities of Other
Corporations. Unless otherwise provided by resolution adopted by the Board or   
any committee designated by it to so act, the Chairman of the Board, Chief      
Executive Officer or President or any Vice President may from time to time      
appoint an attorney or attorneys or agent or agents of the Corporation, in the  
name and on behalf of the Corporation, to cast the votes which the Corporation  
may be entitled to cast as the holder of stock or other securities in any other 
corporation, association or trust, any of whose stock or other securities may be
held by the Corporation, at meetings of the holders of the stock or other       
securities of such other corporation, association or trust, or to consent in    
writing, in the name of the Corporation as such holder, to any action by or     
respecting such other corporation, association or trust, and may instruct the   
person or persons so appointed as to the manner of casting such votes or giving 
such consent, and may execute or cause to be executed in the name and on behalf 
of the Corporation and under its corporate seal, or otherwise, all such written 
proxies or other instruments as he may deem necessary or proper in the premises.

ARTICLE 8.

 BOOKS AND RECORDS
 -----------------

             Section 8.1. Place. The books and records of the Corporation may be
kept at such places within or without the state of Delaware as the Board may    
from time to time determine.                                                    

        Section 8.2. Addresses of Stockholders. Each stockholder shall
furnish to the Secretary of the Corporation or to a transfer agent of the       
Corporation an address at which notices of meetings and all other corporate     
notices and                                                                     

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communications may be served upon or mailed to him, and if any stockholder shall
fail to designate such address, corporate notices and communications may be     
served upon him by mail, postage prepaid, to him at his post office address last
known to the Secretary or to a transfer agent of the Corporation or by          
transmitting a notice thereof to him at such address by facsimile transmission  
or other available method.                                                      

           Section 8.3. Record Dates. Except as otherwise provided by law or
these By-Laws, in order that the Corporation may determine the stockholders     
entitled to notice of or to vote at any meeting of stockholders or any          
adjournment thereof, or entitled to consent to corporate action in writing      
without a meeting, or entitled to receive payment of any dividend or other      
distribution or allotment of any rights, or entitled to exercise any rights in  
respect of any change, conversion or exchange of stock, or for the purpose of   
any other lawful action, the Board may fix, in advance, a record date, which    
shall not be more than sixty days nor less than ten days before the date of such
meeting, or more than sixty days prior to any other action. A determination of  
stockholders of record entitled to notice of or to vote at a meeting of         
stockholders shall apply to any adjournment of the meeting; provided, however,  
that the Board may fix a new record date for the adjourned meeting.             

             Section 8.4. Audit of Books and Accounts. The books and accounts of
the Corporation shall be audited at least once in each fiscal year by certified 
public accountants of good standing selected by the Board.                      

ARTICLE 9.

 SHARES AND THEIR TRANSFER
 -------------------------

       Section 9.1. Certificates of Stock. Every holder of record of
shares of stock of the Corporation shall be entitled to have a certificate      
certifying the number of shares owned by him and designating the class of stock 
to which such shares belong, which shall otherwise be in such form as the Board 
may prescribe. Every such certificate shall be signed by the Chairman of the    
Board, President or a Vice President, and the Treasurer or any Assistant        
Treasurer or the Secretary or any Assistant Secretary of the Corporation; any   
and all signatures may be in facsimile form. In case any officer or officers who
shall have signed, or whose facsimile signature or signatures shall have been   
used on, any such certificate or certificates shall cease to be such officer or 
officers of the Corporation, whether because of death, resignation or otherwise,
before such certificate or certificates shall have been delivered by the        
Corporation, such certificate or certificates may nevertheless be issued and    
delivered by the Corporation as though the person or persons who signed such    
certificate or whose facsimile signature or signatures shall have been used had 
not ceased to be such officer or officers of the Corporation.                   

        Section 9.2. Record. A record shall be kept of the name of the
person, firm or corporation owning the shares of stock represented by each      
certificate for shares of stock of the Corporation issued, the number of shares 
represented by each such certificate, and the date thereof, and, in case of     
cancellation, the date of cancellation. The Corporation shall be entitled to    
recognize the exclusive right of a person registered on its books as the owner  
of shares to receive dividends, and to vote as such owner, and to hold liable   
for calls and assessments a person registered on its books as the owner of      
shares, and shall not be bound to recognize any equitable or other claim to or  
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by  
the Certificate                                                                 

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of Incorporation or law. The stock record books and the blank stock certificate 
books shall be kept by the Secretary or by any other officer or agent designated
by the Board.                                                                   

             Section 9.3. Transfer of Stock. Except as otherwise provided by law
or the Certificate of Incorporation, transfers of shares of the stock of the    
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized, and on the surrender of
the certificate or certificates for such shares properly endorsed or accompanied
by proper instruments of transfer; provided, however, that such transfer is     
subject to the transfer restrictions contained in the Certificate of            
Incorporation.                                                                  

     Section 9.4. Transfer Agent and Registrar; Regulations. The
Corporation shall, if and whenever the Board shall so determine, maintain one or
more transfer offices or agencies, each in charge of a transfer agent designated
by the Board, where the shares of the capital stock of the Corporation shall be 
directly transferable, and also if and whenever the Board shall so determine,   
maintain one or more registry offices, each in charge of a registrar designated 
by the Board, where such shares of stock shall be registered. The Board may make
such rules and regulations as it may deem expedient, not inconsistent with the  
Certificate of Incorporation or these By-Laws, concerning the issue, transfer   
and registration of certificates for shares of the capital stock of the         
Corporation.                                                                    

           Section 9.5. Lost, Destroyed or Mutilated Certificates. The Board
may direct a new certificate representing shares of stock to be issued in place 
of any certificate theretofore issued by the Corporation alleged to have been   
lost, stolen or destroyed, upon the making of an affidavit of that fact by the  
person claiming the certificate of stock to be lost, stolen or destroyed. When  
authorizing such issue of a new certificate, the Board may, in its discretion   
and as a condition precedent to the issuance thereof, require the owner of such 
lost, stolen or destroyed certificate, or his legal representative, to advertise
the same in such manner as the Board of Directors shall require and/or give the 
Corporation a bond in such sum as the Board may direct to indemnify the         
Corporation against any claim that may be made against the Corporation with     
respect to the certificate alleged to have been lost, stolen or destroyed.      

ARTICLE 10. 

SEAL
----

            The Board shall adopt and approve a corporate seal, which shall be
in the form of a circle and shall bear the full name of the Corporation, the    
year of its incorporation and the words and figures "Corporate Seal, Delaware." 
The seal may be used by causing it or a facsimile thereof to be impressed or    
affixed or reproduced or otherwise.                                             

ARTICLE 11. 

 FISCAL YEAR
 -----------

            The fiscal year of the Corporation shall commence on the first day
of January, except as otherwise provided from time to time by resolution of the 
Board of Directors.                                                             

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 ARTICLE 12.

NOTICE
------

            Section 12.1. Delivery of Notices. Except as otherwise provided in
these By-Laws, whenever written notice is required by law, the Certificate of   
Incorporation or these ByLaws, to be given to any director, member of a         
committee of the Board or stockholder, such notice may be given by mail,        
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,  
and such notice shall be deemed to be given at the time when the same shall be  
deposited in the United States mail. Written notice may also be given personally
or by facsimile transmission, telegram, telex or cable or other permissible     
means.                                                                          

             Section 12.2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any      
director, member of a committee of the Board or stockholder, a waiver thereof in
writing, signed by the person or persons entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.           

ARTICLE 13. 

AMENDMENTS
----------

         Section 13.1. By-Laws. The Board may adopt, amend or repeal the
By-Laws by the affirmative vote of a majority of the Board; provided, however,  
that Section 2.3 may not be amended or repealed without the affirmative vote of 
85% of the outstanding shares entitled to vote for the election of directors. No
such amendment may be made unless the By-Laws, as amended, are consistent with  
the provisions of the General Corporation Law of the State of Delaware and of   
the Certificate of Incorporation.                                               

ARTICLE 14. 

 DIVIDENDS
 ---------

        Dividends upon shares of the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be   
declared by the Board, only in accordance with these By-Laws and the Certificate
of Incorporation, and may be paid in cash, in property, or in shares of the     
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board  
from time to time, in its absolute discretion, deems proper as a reserve or     
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the 
Board may modify or abolish any such reserve.                                   

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Appendix C
 1998 Stock Incentive Plan

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MARVEL ENTERPRISES, INC.

 1998 STOCK INCENTIVE PLAN

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 TABLE OF CONTENTS
 -----------------

                                                                            Page
                                                                            ----

1. Purpose.....................................................................1

2. Definitions.................................................................1

3. Administration..............................................................3

4. Stock Subject to the Plan...................................................4

5. Option Grants for Eligible Individuals......................................5
       5.1 Authority of Committee..............................................5
       5.2 Purchase Price......................................................5
       5.3 Maximum Duration....................................................5
       5.4 Vesting.............................................................5
       5.5 Method of Exercise..................................................5
       5.6 Modification or Substitution........................................6
       5.7 Non-transferability.................................................6
       5.8 Rights of Optionees.................................................6
       5.9 Effect of Change in Control.........................................6
       5.10 Dividend Equivalent Rights.........................................6
       5.11 Grants to Certain Outside Directors................................7

6. Stock Appreciation Rights...................................................7
       6.1 Time of Grant.......................................................7
       6.2 Stock Appreciation Right Related to an Option.......................7
          (a) Exercise.........................................................7
          (b) Amount Payable...................................................7
  (c) Treatment of Related Options and Stock Appreciation Rights
              Upon Exercise....................................................7
       6.3 Stock Appreciation Right Unrelated to an Option.....................7
       6.4 Method of Exercise..................................................8
       6.5 Form of Payment.....................................................8
       6.6 Modification or Substitution........................................8
       6.7 Effect of Change in Control.........................................8

7. Restricted Stock............................................................8
       7.1 Grant...............................................................8
       7.2 Rights of Grantee...................................................8
       7.3 Non-transferability.................................................9
       7.4 Lapse of Restrictions...............................................9
          (a) Generally........................................................9
          (b) Effect of Change in Control......................................9
       7.5 Modification or Substitution........................................9
       7.6 Treatment of Dividends..............................................9
       7.7 Delivery of Shares..................................................9

8. Performance Awards..........................................................9
       8.1 Performance Objectives..............................................9
       8.2 Performance Units..................................................10

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                                                                            Page

          (a) Vesting and Forfeiture..........................................10
          (b) Payment of Awards...............................................10
       8.3 Performance Shares.................................................10
          (a) Rights of Grantee...............................................10
          (b) Non-transferability.............................................11
          (c) Lapse of Restrictions...........................................11
          (d) Treatment of Dividends..........................................11
          (e) Delivery of Shares..............................................11
       8.4 Effect of Change in Control........................................11
       8.5 Non-transferability................................................12
       8.6 Modification or Substitution.......................................12

9.  Effect of a Termination of Employment or Service..........................12

10. Adjustment Upon Changes in Capitalization.................................12

11. Effect of Certain Transactions............................................12

12. Interpretation............................................................13

13. Pooling Transactions......................................................13

14. Termination and Amendment of the Plan.....................................13

15. Non-Exclusivity of the Plan...............................................13

16. Limitation of Liability...................................................14

17. Regulations and Other Approvals; Governing Law............................14

18. Miscellaneous.............................................................15
       18.1 Multiple Agreements...............................................15
       18.2 Withholding of Taxes..............................................15

19. Effective Date............................................................15

20. Termination of 1995 Stock Option Plan.....................................15

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MARVEL ENTERPRISES, INC.
 1998 STOCK INCENTIVE PLAN

1.  Purpose.                                                  
-------                                               

            The purpose of this Plan is to strengthen Marvel Enterprises, Inc.
(the "Company") by providing an incentive to its officers, employees,           
consultants and directors and thereby encouraging them to devote their abilities
and industry to the success of the Company's business enterprise. It is intended
that this purpose be achieved by extending to officers, employees, consultants  
and directors of the Company and its subsidiaries an added long-term incentive  
for high levels of performance and unusual efforts through the grant of         
Incentive Stock Options, Nonqualified Stock Options, Stock Appreciation Rights, 
Restricted Stock, Performance Units and Performance Shares (as each term is     
hereinafter defined).                                                           

2.  Definitions.                                              
-----------                                           

For purposes of the Plan:                             

             2.1 "Agreement" means the written agreement between the Company and
an Optionee or Grantee evidencing the grant of an Option or Award and setting   
forth the terms and conditions thereof.                                         

             2.2 "Award" means a grant of Restricted Stock, a Stock Appreciation
Right, a Performance Award or any or all of them.                               

  2.3 "Board" means the Board of Directors of the Company.

      2.4 "Cause" means, unless otherwise defined in the Agreement
evidencing a particular Award, 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) 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.                                 

           2.5 "Change in Capitalization" means any increase or reduction in
the number of Shares, or any change in the Shares or exchange of Shares for a   
different number or kind of shares or other securities of the Company, by reason
of a reclassification, recapitalization, merger, consolidation, reorganization, 
spin-off, split-up, issuance of warrants or rights or debentures, stock         
dividend, stock split or reverse stock split, cash dividend, property dividend, 
combination or exchange of shares, repurchase of shares, change in corporate    
structure or otherwise.                                                         

         2.6 "Code" means the Internal Revenue Code of 1986, as amended.

       2.7 "Committee" means a committee as described in Section 3.1
hereof consisting of at least two (2) Nonemployee Directors appointed by the    
Board to administer the Plan and to perform the functions set forth herein.     

2.8 "Company" means Marvel Enterprises, Inc.          

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         2.9 "Dividend Equivalent Right" means a right to receive all or
some portion of the cash dividends that are or would be payable with respect to 
Shares.                                                                         

          2.10 "Division" means any of the operating units or divisions of
the Company designated as a Division by the Committee.                          

            2.11 "Eligible Individual" means any officer, employee, consultant
or director of the Company or a Subsidiary designated by the Committee as       
eligible to receive Options or Awards subject to the conditions set forth       
herein.                                                                         

           2.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.                                                                        

          2.13 "Fair Market Value" per Share as of a particular date shall
mean (i) the closing sales price per Share on a national securities exchange for
the last preceding date on which there was a sale of such Shares on such        
exchange, or (ii) if the Shares are then traded on an over-the-counter market,  
the average of the closing bid and asked prices for the Shares in such          
over-the-counter market for the last preceding date on which there was a sale of
such Shares in such market, or (iii) if the Shares are not then listed on a     
national securities exchange or traded in an over-the-counter market, such value
as the Committee in its discretion may determine.                               

         2.14 "Grantee" means a person to whom an Award has been granted
under the Plan.                                                                 

      2.15 "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Committee as an   
Incentive Stock Option.                                                         

          2.16 "Nonqualified Stock Option" means an Option which is not an
Incentive Stock Option.                                                         

             2.17 "Option" means an Incentive Stock Option, a Nonqualified Stock
Option or either or both of them.                                               

           2.18 "Optionee" means a person to whom an Option has been granted
under the Plan.                                                                 

           2.19 "Parent" means any corporation which is a parent corporation
(within the meaning of Section 424(e) of the Code) with respect to the Company. 

        2.20 "Performance Awards" means Performance Units, Performance
Shares or either or both of them.                                               

         2.21 "Performance Cycle" means the time period specified by the
Committee at the time a Performance Award is granted during which the           
performance of the Company, a Subsidiary or a Division will be measured.        

            2.22 "Performance Shares" means Shares issued or transferred to an
Eligible Individual under Section 8.3 hereof.                                   

       2.23 "Performance Unit" means Performance Units granted to an
Eligible Individual under Section 8.2 hereof.                                   

            2.24 "Plan" means the Marvel Enterprises Inc. 1998 Stock Incentive
Plan.                                                                           

             2.25 "Pooling Transaction" means an acquisition of the Company in a
transaction which is intended to be treated as a "pooling of interests" under   
generally accepted accounting principles.                                       

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          2.26 "Restricted Stock" means Shares issued or transferred to an
Eligible Individual pursuant to Section 7 hereof.                               

             2.27 "Shares" means the common stock, par value $0.01 per share, of
the Company.                                                                    

            2.28 "Stock Appreciation Right" (SAR) means a right to receive all
or some portion of the increase in the value of the Shares as provided in       
Section 6 hereof.                                                               

       2.29 "Subsidiary" means any corporation which is a subsidiary
corporation (within the meaning of Section 424(f) of the Code) with respect to  
the Company.                                                                    

          2.30 "Successor Corporation" means a corporation, or a parent or
subsidiary thereof within the meaning of Section 424(a) of the Code, which      
issues or assumes a stock option in a transaction to which Section 424(a) of the
Code applies.                                                                   

           2.31 "Ten-Percent Stockholder" means an Eligible Individual, who,
at the time an Incentive Stock Option is to be granted to him or her, owns      
(within the meaning of Section 422(b)(6) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of 
the Company, or of a Parent or a Subsidiary.                                    

3.  Administration.                                           
--------------                                        

          3.1 The Plan shall be administered by the Committee, which shall
hold meetings at such times as may be necessary for the proper administration of
the Plan. The Committee shall keep minutes of its meetings. A quorum shall      
consist of not less than two members of the Committee and a majority of a quorum
may authorize any action. Any decision or determination reduced to writing and  
signed by a majority of all of the members shall be as fully effective as if    
made by a majority vote at a meeting duly called and held. Each member of the   
Committee shall be a nonemployee director within the meaning of Rule 16b-3      
promulgated under the Exchange Act. To the extent compliance with Section 162(m)
of the Code is desired, such Committee members shall also be "outside directors"
within the meaning of Section 162(m) of the Code. No member of the Committee    
shall be liable for any action, failure to act, determination or interpretation 
made in good faith with respect to this Plan or any transaction hereunder,      
except for liability arising from his or her own willful misfeasance, gross     
negligence or reckless disregard of his or her duties. The Company hereby agrees
to indemnify each member of the Committee for all costs and expenses and, to the
extent permitted by applicable law, any liability incurred in connection with   
defending against, responding to, negotiating for the settlement of or otherwise
dealing with any claim, cause of action or dispute of any kind arising in       
connection with any actions in administering this Plan or in authorizing or     
denying authorization to any transaction hereunder.                             

           3.2 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time to:                        

                (a) determine those Eligible Individuals to whom Options shall
be granted under the Plan and the number of Incentive Stock Options and/or      
Nonqualified Stock Options to be granted to each Eligible Individual and to     
prescribe the terms and conditions (which need not be identical) of each Option,
including the purchase price per Share subject to each Option, and make any     
amendment or modification to any Agreement consistent with the terms of the     
Plan; and                                                                       

               (b) select those Eligible Individuals to whom Awards shall be
granted under the Plan and to determine the number of Stock Appreciation Rights,
Performance Units, Performance Shares, and/or Shares of Restricted Stock to be  
granted pursuant to each Award, the terms and conditions of each Award,         
including the restrictions or performance criteria relating to such Performance 
Units or Performance Shares, the maximum                                        

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value of each Performance Unit and Performance Share and make any amendment or  
modification to any Agreement consistent with the terms of the Plan.            

           3.3 Subject to the express terms and conditions set forth herein,
the Committee shall have the power from time to time:                           

            (a) to construe and interpret the Plan and the Options and
Awards granted hereunder and to establish, amend and revoke rules and           
regulations for the administration of the Plan, including, but not limited to,  
correcting any defect or supplying any omission, or reconciling any             
inconsistency in the Plan or in any Agreement, in the manner and to the extent  
it shall deem necessary or advisable to make the Plan fully effective and comply
with applicable law including Rule 16b-3 under the Exchange Act and the Code to 
the extent applicable. All decisions and determinations by the Committee in the 
exercise of this power shall be final, binding and conclusive upon the Company, 
its Subsidiaries, the Optionees and Grantees, and all other persons having any  
interest therein;                                                               

          (b) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee or Grantee on an individual basis   
without constituting a termination of employment or service for purposes of the 
Plan;                                                                           

               (c) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan;                                  

                 (d) generally, to exercise such powers and to perform such acts
as are deemed necessary or advisable to promote the best interests of the       
Company with respect to the Plan; and                                           

              (e) to provide for the limited transferability of Options to
certain family members, family trusts or family partnerships of Optionees.      

4.  Stock Subject to the Plan.                                
-------------------------                             

          4.1 The maximum number of Shares that may be made the subject of
Options and Awards granted under the Plan is 6,000,000; provided, however, that 
the maximum number of Shares that may be the subject of Options and Awards      
granted to any Eligible Individual during any calendar year may not exceed      
1,000,000 Shares. Upon a Change in Capitalization the maximum number of Shares  
which may be made the subject of Options and Awards granted under the Plan and  
which may be granted to any Eligible Individual during any calendar year shall  
be adjusted in number and kind pursuant to Section 10 hereof. The Company shall 
reserve for the purposes of the Plan, out of its authorized but unissued Shares 
or out of Shares held in the Company's treasury, or partly out of each, such    
number of Shares as shall be determined by the Board.                           

       4.2 Upon the granting of an Option or an Award, the number of
Shares available under Section 4.1 hereof for the granting of further Options   
and Awards shall be reduced as follows:                                         

             (a) In connection with the granting of an Option or an Award (other
than the granting of a Performance Unit denominated in dollars), the number of  
Shares shall be reduced by the number of Shares in respect of which the Option  
or Award is granted or denominated.                                             

   (b) In connection with the granting of a Performance Unit
denominated in dollars, the number of Shares shall be reduced by an amount equal
to the quotient of (i) the dollar amount in which the Performance Unit is       
denominated, divided by (ii) the Fair Market Value of a Share on the date the   
Performance Unit is granted.                                                    

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         4.3 Whenever any outstanding Option or Award or portion thereof
expires, is canceled or is otherwise terminated for any reason without having   
been exercised or payment having been made in respect of the entire Option or   
Award, the Shares allocable to the expired, canceled or otherwise terminated    
portion of the Option or Award may again be the subject of Options or Awards    
granted hereunder.                                                              

5. Option Grants for Eligible Individuals.                    
--------------------------------------                  

           5.1 Authority of Committee. Subject to the provisions of the Plan
and to Section 4.1 hereof, the Committee shall have full and final authority to 
select those Eligible Individuals who will receive Options, the terms and       
conditions of which shall be set forth in an Agreement; provided, however, that 
no person shall receive any Incentive Stock Options unless he or she is an      
employee of the Company, a Parent or a Subsidiary at the time the Incentive     
Stock Option is granted. The aggregate Fair Market Value (determined as of the  
date of grant of an Incentive Stock Option) of the Shares with respect to which 
Incentive Stock Options granted under this Plan and all other option plans of   
the Company, any Parent and any Subsidiary become exercisable for the first time
by an Optionee during any calendar year shall not exceed $100,000. Any such     
Options granted in excess of the $100,000 limitation shall be deemed to be      
Nonqualified Stock Options.                                                     

           5.2 Purchase Price. The purchase price or the manner in which the
purchase price is to be determined for Shares under each Option shall be        
determined by the Committee and set forth in the Agreement; provided, however,  
that the purchase price per Share under each Option shall not be less than 100% 
of the Fair Market Value of a Share on the date the Option is granted (110% in  
the case of an Incentive Stock Option granted to a Ten-Percent Stockholder).    

           5.3 Maximum Duration. Options granted hereunder shall be for such
term as the Committee shall determine, provided that an Incentive Stock Option  
shall not be exercisable after the expiration of ten (10) years from the date it
is granted (five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) and a Nonqualified Stock Option shall not be           
exercisable after the expiration of ten (10) years from the date it is granted. 
The Committee may, subsequent to the granting of any Option, extend the term    
thereof, but in no event shall the term as so extended exceed the maximum term  
provided for in the preceding sentence.                                         

       5.4 Vesting. Subject to Section 5.9 hereof, each Option shall
become exercisable in such installments (which need not be equal) and at such   
times as may be designated by the Committee and set forth in the Agreement. If  
the Committee does not so designate, Options shall become exercisable in three  
equal or nearly equal installments on the first, second and third anniversaries 
of the date of grant. To the extent not exercised, installments shall accumulate
and be exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the Option expires. The Committee may accelerate the
exercisability of any Option or portion thereof at any time.                    

         5.5 Method of Exercise. The exercise of an Option shall be made
only by a written notice delivered in person or by mail to the Secretary of the 
Company at the Company's principal executive office, specifying the number of   
Shares to be purchased and accompanied by payment therefor and otherwise in     
accordance with the Agreement pursuant to which the Option was granted. The     
purchase price for any Shares purchased pursuant to the exercise of an Option   
shall be paid in full upon such exercise by any one or a combination of the     
following: (i) cash or (ii) with the consent of the Committee, transferring     
Shares to the Company upon such terms and conditions as determined by the       
Committee (such as, for example, a requirement that such Shares have been held  
for at least six months if necessary to avoid adverse accounting consequences). 
Any Shares transferred to the Company as payment of the purchase price under an 
Option shall be valued at their Fair Market Value on the day preceding the date 
of exercise of such Option, unless otherwise provided in an Agreement.          
Notwithstanding the foregoing, the Committee shall have discretion to determine 
at the time of grant of each Option or at any later date (up to and including   
the date of exercise) the form of payment acceptable in respect of the exercise 
of such Option. The written notice pursuant to this Section 5.5 may also provide
instructions from the Optionee to the Company that upon receipt of the purchase 
price in cash from the Optionee's broker or dealer, designated as such on the   
written                                                                         

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notice, in payment for any Shares purchased pursuant to the exercise of an      
Option, the Company shall issue such Shares directly to the designated broker or
dealer. If requested by the Committee, the Optionee shall deliver the Agreement 
evidencing the Option to the Secretary of the Company who shall endorse thereon 
a notation of such exercise and return such Agreement to the Optionee. No       
fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an 
Option and the number of Shares that may be purchased upon exercise shall be    
rounded to the nearest number of whole Shares.                                  

     5.6 Modification or Substitution. The Committee may, in its
discretion, modify outstanding Options or accept the surrender of outstanding   
Options (to the extent not exercised) and grant new Options in substitution for 
them. Notwithstanding the foregoing, no modification of an Option shall         
adversely alter or impair any rights or obligations under the Option without the
Optionee's consent.                                                             

       5.7 Non-transferability. No Option granted hereunder shall be
transferable by the Optionee to whom granted otherwise than by will or the laws 
of descent and distribution unless specifically authorized by the Committee, and
unless transferred in a manner permitted by the Committee an Option may be      
exercised during the lifetime of such Optionee only by the Optionee or his or   
her guardian or legal representative. The terms of such Option shall be final,  
binding and conclusive upon the beneficiaries, executors, administrators, heirs 
and successors of the Optionee.                                                 

      5.8 Rights of Optionees. No Optionee shall be deemed for any
purpose to be the owner of any Shares subject to any Option unless and until (i)
the Option shall have been exercised pursuant to the terms thereof, (ii) the    
Company shall have issued and delivered the Shares to the Optionee and (iii) the
Optionee's name shall have been entered as a stockholder of record on the books 
of the Company. Thereupon, the Optionee shall have full voting, dividend and    
other ownership rights with respect to such Shares, subject to such terms and   
conditions as may be set forth in the applicable Agreement.                     

             5.9 Effect of Change in Control. Notwithstanding anything contained
in the Plan to the contrary, the Committee may provide in an Agreement for the  
accelerated vesting of all or any portion of an Option in the event of a change 
in control of the Company.                                                      

            5.10 Dividend Equivalent Rights. Dividend Equivalent Rights may be
granted to Eligible Individuals in tandem with an Option. The terms and         
conditions applicable to each Dividend Equivalent Right shall be specified in   
the Agreement under which the Dividend Equivalent Rights may be payable         
currently or deferred until the lapsing of restrictions on such Dividend        
Equivalent Rights or until the vesting, exercise, payment, settlement or other  
lapse of restrictions on the Option to which the Dividend Equivalent Rights     
relate. In the event that the amounts payable in respect of Dividend Equivalent 
Rights are to be deferred, the Committee shall determine whether such amounts   
are to be held in cash or reinvested in Shares or deemed (notionally) to be     
reinvested in Shares. If amounts payable in respect to Dividend Equivalent      
Rights are to be held in cash, there may be credited at the end of each year (or
portion thereof) interest on the amount of the account at the beginning of the  
year at a rate per annum as the Committee, in its discretion, may determine.    
Dividend Equivalent Rights may be settled in cash or Shares or a combination    
thereof, in a single installment or multiple installments.                      

           5.11 Grants to Certain Outside Directors. In the event a Director
of the Company is required by contract to deliver any compensation from the     
Company to the Director's employer, the Director may elect, with the consent of 
the Committee to have Awards pursuant to this Plan made to such Director's      
employer. In such case, the vesting, exercisability and termination provisions  
shall be applied with respect to the service of the Director.                   

     6. Stock Appreciation Rights. The Committee may, in its discretion,
either alone or in connection with the grant of an Option, grant Stock          
Appreciation Rights in accordance with the Plan, the terms and conditions of    
which shall be set forth in an Agreement. If granted in connection with an      
Option, a Stock Appreciation Right shall cover the same Shares covered by the   
Option (or such lesser number of Shares as the                                  

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Committee may determine) and shall, except as provided in this Section 6, be    
subject to the same terms and conditions as the related Option.                 

             6.1 Time of Grant. A Stock Appreciation Right may be granted (i) at
any time if unrelated to an Option, or (ii) if related to an Option, either at  
the time of grant, or at any time thereafter during the term of the Option.     

6.2 Stock Appreciation Right Related to an Option.    

      (a) Exercise. Subject to Section 6.7 hereof, a Stock
Appreciation Right granted in connection with an Option shall be exercisable at 
such time or times and only to the extent that the related Option is            
exercisable, and will not be transferable even if the related Option is         
transferable. A Stock Appreciation Right granted in connection with an Incentive
Stock Option shall be exercisable only if the Fair Market Value of a Share on   
the date of exercise exceeds the purchase price specified in the related        
Incentive Stock Option Agreement.                                               

               (b) Amount Payable. Upon the exercise of a Stock Appreciation
Right related to an Option, the Grantee shall be entitled to receive an amount  
determined by multiplying (A) the excess of the Fair Market Value of a Share on 
the date preceding the date of exercise of such Stock Appreciation Right over   
the per Share purchase price under the related Option, by (B) the number of     
Shares as to which such Stock Appreciation Right is being exercised.            
Notwithstanding the foregoing, the Committee may limit in any manner the amount 
payable with respect to any Stock Appreciation Right by including such a limit  
in the Agreement evidencing the Stock Appreciation Right at the time it is      
granted.                                                                        

                (c) Treatment of Related Options and Stock Appreciation Rights
Upon Exercise. Upon the exercise of a Stock Appreciation Right granted in       
connection with an Option, the Option shall be canceled to the extent of the    
number of Shares as to which the Stock Appreciation Right is exercised, and upon
the exercise of an Option granted in connection with a Stock Appreciation Right,
the Stock Appreciation Right shall be canceled to the extent of the number of   
Shares as to which the Option is exercised.                                     

            6.3 Stock Appreciation Right Unrelated to an Option. The Committee
may grant to Eligible Individuals Stock Appreciation Rights unrelated to        
Options. Stock Appreciation Rights unrelated to Options shall contain such terms
and conditions as to exercisability (subject to Section 6.7 hereof), vesting and
duration as the Committee shall determine, but in no event shall they have a    
term of greater than ten (10) years. If the Committee does not designate a      
vesting schedule, the schedule shall be in equal or nearly equal installments on
the first, second and third anniversaries of the date of grant. Upon exercise of
a Stock Appreciation Right unrelated to an Option, the Grantee shall be entitled
to receive an amount determined by multiplying (A) the excess of the Fair Market
Value of a Share on the date preceding the date of exercise of such Stock       
Appreciation Right over the Fair Market Value of a Share on the date the Stock  
Appreciation Right was granted, by (B) the number of Shares as to which the     
Stock Appreciation Right is being exercised. Notwithstanding the foregoing, the 
Committee may limit in any manner the amount payable with respect to any Stock  
Appreciation Right by including such a limit in the Agreement evidencing the    
Stock Appreciation Right at the time it is granted.                             

    6.4 Method of Exercise. Stock Appreciation Rights shall be
exercised by a Grantee only by a written notice delivered in person or by mail  
to the Secretary of the Company at the Company's principal executive office,    
specifying the number of Shares with respect to which the Stock Appreciation    
Right is being exercised. If requested by the Committee, the Grantee shall      
deliver the Agreement evidencing the Stock Appreciation Right being exercised   
and the Agreement evidencing any related Option to the Secretary of the Company 
who shall endorse thereon a notation of such exercise and return such Agreement 
to the Grantee.                                                                 

     6.5 Form of Payment. Payment of the amount determined under
Sections 6.2(b) or 6.3 hereof may be made in the discretion of the Committee,   
solely in whole Shares in a number determined at their Fair Market Value on the 
date preceding the date of exercise of the Stock Appreciation Right, or solely  
in cash, or in                                                                  

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a combination of cash and Shares. If the Committee decides to make full payment 
in Shares and the amount payable results in a fractional Share, payment for the 
fractional Share will be made in cash.                                          

             6.6 Modification or Substitution. Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Stock Appreciation Rights or     
accept the surrender of outstanding Awards of Stock Appreciation Rights (to the 
extent not exercised) and grant new Awards in substitution for them.            
Notwithstanding the foregoing, no modification of an Award shall adversely alter
or impair any rights or obligations under the Agreement without the Grantee's   
consent.                                                                        

             6.7 Effect of Change in Control. Notwithstanding anything contained
in this Plan to the contrary, the Committee may provide in an Agreement for the 
accelerated vesting of all or a portion of any Stock Appreciation Right in the  
event of a change in control of the Company.                                    

7. Restricted Stock.                                          
----------------                                        

           7.1 Grant. The Committee may grant to Eligible Individuals Awards
of Restricted Stock, and may issue Shares of Restricted Stock in payment in     
respect of vested Performance Units (as hereinafter provided in Section 8.2     
hereof), which shall be evidenced by an Agreement between the Company and the   
Grantee. Each Agreement shall contain such restrictions, terms and conditions as
the Committee may, in its discretion, determine and (without limiting the       
generality of the foregoing) such Agreements may require that an appropriate    
legend be placed on Share certificates. Awards of Restricted Stock shall be     
subject to the terms and provisions set forth below in this Section 7.          

            7.2 Rights of Grantee. Shares of Restricted Stock granted pursuant
to an Award hereunder shall be issued in the name of the Grantee as soon as     
reasonably practicable after the Award is granted provided that the Grantee has 
executed an Agreement evidencing the Award, the appropriate blank stock powers  
and, in the discretion of the Committee, an escrow agreement and any other      
documents which the Committee may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Stock Award, the appropriate blank stock powers and, in the discretion of the   
Committee, an escrow agreement and any other documents which the Committee may  
require within the time period prescribed by the Committee at the time the Award
is granted, the Award shall be null and void. At the discretion of the          
Committee, Shares issued in connection with a Restricted Stock Award shall be   
deposited together with the stock powers with an escrow agent (which may be the 
Company) designated by the Committee. Unless the Committee determines otherwise 
and as set forth in the Agreement, upon delivery of the Shares to the escrow    
agent, the Grantee shall have all of the rights of a stockholder with respect to
such Shares, including the right to vote the Shares and to receive all dividends
or other distributions paid or made with respect to the Shares.                 

            7.3 Non-transferability. Until any restrictions upon the Shares of
Restricted Stock awarded to a Grantee shall have lapsed in the manner set forth 
in Section 7.4 hereof, such Shares shall not be sold, transferred or otherwise  
disposed of and shall not be pledged or otherwise hypothecated, nor shall they  
be delivered to the Grantee.                                                    

7.4 Lapse of Restrictions.                            

             (a) Generally. Restrictions upon Shares of Restricted Stock
awarded hereunder shall lapse at such time or times and on such terms and       
conditions as the Committee may determine, which restrictions shall be set forth
in the Agreement evidencing the Award. If the Committee does not so provide,    
restrictions shall lapse in three equal or nearly equal installments on the     
first, second and third anniversaries of the date of grant.                     

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           (b) Effect of Change in Control. Notwithstanding anything
contained in the Plan to the contrary, the Committee may provide in an Agreement
for the lapsing of all restrictions imposed upon any or all Shares of Restricted
Stock in the event of a change in control of the Company.                       

             7.5 Modification or Substitution. Subject to the terms of the Plan,
the Committee may modify outstanding Awards of Restricted Stock or accept the   
surrender of outstanding Shares of Restricted Stock (to the extent the          
restrictions on such Shares have not yet lapsed) and grant new Awards in        
substitution for them. Notwithstanding the foregoing, no modification of an     
Award shall adversely alter or impair any rights or obligations under the       
Agreement without the Grantee's consent.                                        

        7.6 Treatment of Dividends. At the time the Award of Shares of
Restricted Stock is granted, the Committee may, in its discretion, determine    
that the payment to the Grantee of dividends, or a specified portion thereof,   
declared or paid on such Shares by the Company shall be (i) deferred until the  
lapsing of the restrictions imposed upon such Shares and (ii) held by the       
Company for the account of the Grantee until such time. In the event that       
dividends are to be deferred, the Committee shall determine whether such        
dividends are to be reinvested in Shares (which shall be held as additional     
Shares of Restricted Stock) or held in cash. If deferred dividends are to be    
held in cash, there may be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its discretion, may determine. Payment of deferred   
dividends in respect of Shares of Restricted Stock (whether held in cash or as  
additional Shares of Restricted Stock), together with interest accrued thereon, 
if any, shall be made upon the lapsing of restrictions imposed on the Shares in 
respect of which the deferred dividends were paid, and any dividends deferred   
(together with any interest accrued thereon) in respect of any Shares of        
Restricted Stock shall be forfeited upon the forfeiture of such Shares.         

       7.7 Delivery of Shares. Upon the lapse of the restrictions on
Shares of Restricted Stock, the Committee shall cause a stock certificate to be 
delivered to the Grantee with respect to such Shares, free of all restrictions  
hereunder.                                                                      

8. Performance Awards.                                        
------------------                                      

            8.1 Performance Objectives. Performance objectives for Performance
Awards may be expressed in terms of (i) earnings per Share, (ii) pre-tax        
profits, (iii) net earnings or net worth, (iv) return on equity or assets, (v)  
any combination of the foregoing, or (vi) any other standard or standards deemed
appropriate by the Committee at the time the Award is granted. Performance      
objectives may be in respect of the performance of the Company and its          
Subsidiaries (which may be on a consolidated basis), a Subsidiary or a Division.
Performance objectives may be absolute or relative and may be expressed in terms
of a progression within a specified range. Prior to the end of a Performance    
Cycle, the Committee, in its discretion, may adjust the performance objectives  
to reflect a Change in the Capitalization, a change in the tax rate or book tax 
rate of the Company or any Subsidiary, or any other event which may materially  
affect the performance of the Company, a Subsidiary or a Division, including,   
but not limited to, market conditions or a significant acquisition or           
disposition of assets or other property by the Company, a Subsidiary or a       
Division.                                                                       

            8.2 Performance Units. The Committee, in its discretion, may grant
Awards of Performance Units to Eligible Individuals, the terms and conditions of
which shall be set forth in an Agreement between the Company and the Grantee.   
Performance Units may be denominated in Shares or a specified dollar amount and,
contingent upon the attainment of specified performance objectives within the   
Performance Cycle, represent the right to receive payment as provided in Section
8.2(b) hereof of (i) in the case of Share-denominated Performance Units, the    
Fair Market Value of a Share on the date the Performance Unit was granted, the  
date the Performance Unit became vested or any other date specified by the      
Committee, (ii) in the case of dollar-denominated Performance Units, the        
specified dollar amount or (iii) a percentage (which may be more than 100%) of  
the amount described in clause (i) or (ii) depending on the level of performance
objective attainment; provided, however, that the Committee may at the time a   
Performance Unit is granted, specify a maximum amount payable in                

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respect of a vested Performance Unit. Each Agreement shall specify the number of
the Performance Units to which it relates, the performance objectives which must
be satisfied in order for the Performance Units to vest and the Performance     
Cycle within which such objectives must be satisfied.                           

                (b) Vesting and Forfeiture. A Grantee shall become vested with
respect to the Performance Units to the extent that the performance objectives  
set forth in the Agreement are satisfied for the Performance Cycle.             

                 (c) Payment of Awards. Payment to Grantees in respect of vested
Performance Units shall be made within sixty (60) days after the last day of the
Performance Cycle to which such Award relates unless the Agreement evidencing   
the Award provides for the deferral of payment, in which event the terms and    
conditions of the deferral shall be set forth in the Agreement. Subject to      
Section 8.4 hereof, such payments may be made entirely in Shares valued at their
Fair Market Value as of the last day of the applicable Performance Cycle or such
other date specified by the Committee, entirely in cash, or in such combination 
of Shares and cash as the Committee in its discretion, shall determine at any   
time prior to such payment; provided, however, that if the Committee in its     
discretion determines to make such payment entirely or partially in Shares of   
Restricted Stock, the Committee must determine the extent to which such payment 
will be in Shares of Restricted Stock and the terms of such Restricted Stock at 
the time the Award is granted.                                                  

             8.3 Performance Shares. The Committee, in its discretion, may grant
Awards of Performance Shares to Eligible Individuals, the terms and conditions  
of which shall be set forth in an Agreement between the Company and the Grantee.
Each Agreement may require that an appropriate legend be placed on Share        
certificates. Awards of Performance Shares shall be subject to the following    
terms and provisions:                                                           

                (a) Rights of Grantee. The Committee shall provide at the time
an Award of Performance Shares is made, the time or times at which the actual   
Shares represented by such Award shall be issued in the name of the Grantee;    
provided, however, that no Performance Shares shall be issued until the Grantee 
has executed an Agreement evidencing the Award, the appropriate blank stock     
powers and, in the discretion of the Committee, an escrow agreement and any     
other documents which the Committee may require as a condition to the issuance  
of such Performance Shares. If a Grantee shall fail to execute the Agreement    
evidencing an Award of Performance Shares, the appropriate blank stock powers   
and, in the discretion of the Committee, an escrow agreement and any other      
documents which the Committee may require within the time period prescribed by  
the Committee at the time the Award is granted, the Award shall be null and     
void. At the discretion of the Committee, Shares issued in connection with an   
Award of Performance Shares shall be deposited together with the stock powers   
with an escrow agent (which may be the Company) designated by the Committee.    
Except as restricted by the terms of the Agreement, upon delivery of the Shares 
to the escrow agent, the Grantee shall have, in the discretion of the Committee,
all of the rights of a stockholder with respect to such Shares, including the   
right to vote the Shares and to receive all dividends or other distributions    
paid or made with respect to the Shares.                                        

          (b) Non-transferability. Until any restrictions upon the
Performance Shares awarded to a Grantee shall have lapsed in the manner set     
forth in Sections 8.3(c) or 8.4 hereof, such Performance Shares shall not be    
sold, transferred or otherwise disposed of and shall not be pledged or otherwise
hypothecated, nor shall they be delivered to the Grantee. The Committee may also
impose such other restrictions and conditions on the Performance Shares, if any,
as it deems appropriate.                                                        

           (c) Lapse of Restrictions. Subject to Section 8.4 hereof,
restrictions upon Performance Shares awarded hereunder shall lapse and such     
Performance Shares shall become vested at such time or times and on such terms, 
conditions and satisfaction of performance objectives as the Committee may, in  
its discretion, determine at the time an Award is granted.                      

      (d) Treatment of Dividends. At the time the Award of
Performance Shares is granted, the Committee may, in its discretion, determine  
that the payment to the Grantee of dividends, or a specified                    

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portion thereof, declared or paid on actual Shares represented by such Award    
which have been issued by the Company to the Grantee shall be (i) deferred until
the lapsing of the restrictions imposed upon such Performance Shares and (ii)   
held by the Company for the account of the Grantee until such time. In the event
that dividends are to be deferred, the Committee shall determine whether such   
dividends are to be reinvested in Shares (which shall be held as additional     
Performance Shares) or held in cash. If deferred dividends are to be held in    
cash, there may be credited at the end of each year (or portion thereof)        
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its discretion, may determine. Payment of deferred   
dividends in respect of Performance Shares (whether held in cash or in          
additional Performance Shares), together with interest accrued thereon, if any, 
shall be made upon the lapsing of restrictions imposed on the Performance Shares
in respect of which the deferred dividends were paid, and any dividends deferred
(together with any interest accrued thereon) in respect of any Performance      
Shares shall be forfeited upon the forfeiture of such Performance Shares.       

               (e) Delivery of Shares. Upon the lapse of the restrictions on
Performance Shares awarded hereunder, the Committee shall cause a stock         
certificate to be delivered to the Grantee with respect to such Shares, free of 
all restrictions hereunder.                                                     

             8.4 Effect of Change in Control. Notwithstanding anything contained
in the Plan to the contrary:                                                    

              (a) With respect to the Performance Units, the Committee may
determine that a Grantee shall (i) become vested in a percentage of Performance 
Units as a result of a change in control of the Company and (ii) be entitled to 
receive in respect of all Performance Units which become vested as a result of a
change in control of the Company, a cash payment in an amount as determined by  
the Committee and as set forth in the Agreement.                                

               (b) With respect to the Performance Shares, the Committee may
provide in an Agreement for the lapse of restrictions imposed upon all or a     
portion of the Performance Shares in the event of a change in control of the    
Company.                                                                        

      (c) The Agreements evidencing Performance Shares and
Performance Units shall provide for the treatment of such Awards (or portions   
thereof) which do not become vested as the result of a change in control of the 
Company, including, but not limited to, provisions for the adjustment of        
applicable performance objectives.                                              

 8.5 Non-transferability. No Performance Awards shall be
transferable by the Grantee otherwise than by will or the laws of descent and   
distribution.                                                                   

             8.6 Modification or Substitution. Subject to the terms of the Plan,
the Committee may modify outstanding Performance Awards or accept the surrender 
of outstanding Performance Awards and grant new Performance Awards in           
substitution for them. Notwithstanding the foregoing, no modification of a      
Performance Award shall adversely alter or impair any rights or obligations     
under the Agreement without the Grantee's consent.                              

9. Effect of a Termination of Employment or Service.          
------------------------------------------------        

          The Agreement evidencing the grant of each Option and each Award
shall set forth the terms and conditions applicable to such Option or Award upon
a termination or change in the status of the employment or service of the       
Optionee or Grantee by the Company, a Subsidiary or a Division (including a     
termination or change by reason of the sale of a Subsidiary or a Division or a  
change in status from employee or director to consultant), as the Committee may,
in its discretion, determine at the time the Option or Award is granted or      
thereafter. Notwithstanding the foregoing and unless specifically set forth in  
an Agreement to the contrary, (i) in the event an Optionee's or Grantee's       
employment or service with the Company is terminated for Cause, the Option      

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or Award granted to the Optionee or Grantee hereunder shall immediately         
terminate in full and in the case of Options, no rights thereunder may be       
exercised, and in all other cases, no payment will be made with respect thereto,
and (ii) in the event the Optionee's or Grantee's employment or service with the
Company is terminated other than for Cause, the Option or Award granted to the  
Optionee or Grantee hereunder shall terminate in full on the ninetieth (90th)   
day following such termination and in the case of Options, no rights thereunder 
may be exercised, and in all other cases, no payment will be made with respect  
thereto.                                                                        

10. Adjustment Upon Changes in Capitalization.        
-----------------------------------------     

               (a) In the event of a Change in Capitalization, the Committee
shall conclusively determine the appropriate adjustments, if any, to the (i)    
maximum number and class of Shares or other stock or securities with respect to 
which Options or Awards may be granted under the Plan, (ii) maximum number of   
class of Shares or other stock or securities with respect to which Options may  
be granted to any Eligible Individual during the term of the Plan and (iii) the 
number and class of Shares or other stock or securities which are subject to    
outstanding Options or Awards granted under the Plan, and the purchase price    
therefor, if applicable.                                                        

         (b) Any such adjustment in the Shares or other stock or
securities subject to outstanding Incentive Stock Options (including any        
adjustments in the purchase price) shall be made in such manner as not to       
constitute a modification as defined by Section 424(h)(3) of the Code and only  
to the extent otherwise permitted by Sections 422 and 424 of the Code.          

               (c) If, by reason of a Change in Capitalization, a Grantee of
an Award shall be entitled to, or an Optionee shall be entitled to exercise an  
Option with respect to, new, additional or different shares of stock or         
securities, such new, additional or different shares shall thereupon be subject 
to all of the conditions, restrictions and performance criteria which were      
applicable to the Shares subject to the Award or Option, as the case may be,    
prior to such Change in Capitalization.                                         

   11. Effect of Certain Transactions. Subject to Sections 5.9, 6.7,
7.4(b) and 8.4 hereof, in the event of (i) the liquidation or dissolution of the
Company or (ii) a merger or consolidation of the Company (a "Transaction"), the 
Plan and the Options and Awards issued hereunder shall continue in effect in    
accordance with their respective terms except that following a Transaction each 
Optionee and Grantee shall be entitled to receive in respect of each Share      
subject to any outstanding Options or Awards, as the case may be, upon exercise 
of any Option or SAR or payment or transfer in respect of any Award, the same   
number and kind of stock, securities, cash, property, or other consideration    
that each holder of a Share was entitled to receive in the Transaction in       
respect of a Share; provided, however, that such stock, securities, cash,       
property, or other consideration shall remain subject to all of the conditions, 
restrictions and performance criteria which were applicable to the Options or   
Awards prior to such Transaction.                                               

12. Interpretation.                                           
--------------                                        

            (a) Awards under the Plan are intended to comply with Rule
16b-3 promulgated under the Exchange Act and the Committee shall interpret and  
administer the provisions of the Plan or any Agreement in a manner consistent   
therewith. Any provisions inconsistent with such Rule shall be inoperative and  
shall not affect the validity of the Plan.                                      

       (b) Unless otherwise expressly stated in the relevant
Agreement, each Award granted under the Plan (other than Restricted Stock) is   
intended to be performance-based compensation within the meaning of Section     
162(m)(4)(C) of the Code. Except in cases of the death, disability or change in 
control, the Committee shall not be entitled to exercise any discretion         
otherwise authorized hereunder with respect to such Awards if the ability to    
exercise such discretion or the exercise of such discretion itself would cause  
the compensation attributable to such Awards to fail to qualify as              
performance-based compensation.                                                 

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     13. Pooling Transactions. Notwithstanding anything contained in the
Plan or any Agreement to the contrary, in the event of a change in control of   
the Company which is also intended to constitute a Pooling Transaction, the     
Committee shall take such actions, if any, which are specifically recommended by
an independent accounting firm retained by the Company to the extent reasonably 
necessary in order to assure that the Pooling Transaction will qualify as such, 
including but not limited to (i) deferring the vesting, exercise, payment or    
settlement with respect to any Option or Award, (ii) providing that the payment 
or settlement in respect of any Option or Award be made in the form of cash,    
Shares or securities of a successor or acquired of the Company, or a combination
of the foregoing and (iii) providing for the extension of the term of any Option
or Award to the extent necessary to accommodate the foregoing, but not beyond   
the maximum term permitted for any Option or Award.                             

14. Termination and Amendment of the Plan.                    
-------------------------------------                 

         The Plan shall terminate on the day preceding the tenth
anniversary of the date of its adoption by the Board and no Option or Award may 
be granted thereafter. The Board may sooner terminate the Plan and the Board may
at any time and from time to time amend, modify or suspend the Plan; provided,  
however, that:                                                                  

                (a) No such amendment, modification, suspension or termination
shall impair or adversely alter any Options, SARs or Awards theretofore granted 
under the Plan, except with the consent of the Optionee or Grantee, nor shall   
any amendment, modification, suspension or termination deprive any Optionee or  
Grantee of any Shares which he or she may have acquired through or as a result  
of the Plan; and                                                                

                 (b) To the extent necessary under Section 16(b) of the Exchange
Act and the rules and regulations promulgated thereunder or applicable law or   
securities exchange rule, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations.  

15. Non-Exclusivity of the Plan.                              
---------------------------                           

                 The adoption of the Plan by the Board shall not be construed as
amending, modifying or rescinding any previously approved incentive arrangement 
or as creating any limitations on the power of the Board to adopt such other    
incentive arrangements as it may deem desirable, including, without limitation, 
the granting of stock options otherwise than under the Plan, and such           
arrangements may be either applicable generally or only in specific cases.      

16. Limitation of Liability.                                  
-----------------------                               

                 As illustrative of the limitations of liability of the Company,
but not intended to be exhaustive thereof, nothing in the Plan shall be         
construed to:                                                                   

                (a) give any person any right to be granted an Option or Award
other than at the sole discretion of the Committee;                             

           (b) give any person any rights whatsoever with respect to
Shares except as specifically provided in the Plan;                             

                (c) limit in any way the right of the Company to terminate the
employment of any person at any time; or                                        

                 (d) be evidence of any agreement or understanding, expressed or
implied, that the Company will employ any person at any particular rate of      
compensation or for any particular period of time.                              

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17. Regulations and Other Approvals; Governing Law.           
----------------------------------------------        

            17.1 Except as to matters of federal law, this Plan and the rights
of all persons claiming hereunder shall be construed and determined in          
accordance with the laws of the State of New York without giving effect to      
conflicts of law principles thereof.                                            

           17.2 The obligation of the Company to sell or deliver Shares with
respect to Options and Awards granted under the Plan shall be subject to all    
applicable laws, rules and regulations, including all applicable federal and    
state securities laws, and the obtaining of all such approvals by governmental  
agencies as may be deemed necessary or appropriate by the Committee.            

     17.3 The Board may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government          
authority, or to obtain for Eligible Individuals granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and regulations    
promulgated thereunder.                                                         

           17.4 Each Option and Award is subject to the requirement that, if
at any time the Committee determines, in its discretion, that the listing,      
registration or qualification of Shares issuable pursuant to the Plan is        
required by any securities exchange or under any state or federal law, or the   
consent or approval of any governmental regulatory body is necessary or         
desirable as a condition of, or in connection with, the grant of an Option or   
Award or the issuance of Shares, no Options or Awards shall be granted or       
payment made or Shares issued, in whole or in part, unless listing,             
registration, qualification, consent or approval has been effected or obtained  
free of any conditions as acceptable to the Committee.                          

    17.5 Notwithstanding anything contained in the Plan or any
Agreement to the contrary, in the event that the disposition of Shares acquired 
pursuant to the Plan is not covered by a then current registration statement    
under the Securities Act of 1933, as amended, (the "Securities Act") and is not 
otherwise exempt from such registration, such Shares shall be restricted against
transfer to the extent required by the Securities Act and Rule 144 or other     
regulations thereunder. The Committee may require any individual receiving      
Shares pursuant to an Option or Award granted under the Plan, as a condition    
precedent to receipt of such Shares or Awards, to represent and warrant to the  
Company in writing that the Shares acquired by such individual are acquired     
without a view to any distribution thereof and will not be sold or transferred  
other than pursuant to an effective registration thereof under said Act or      
pursuant to an exemption applicable under the Securities Act or the rules and   
regulations promulgated thereunder. The certificates evidencing any of such     
Shares or Awards shall be appropriately amended to reflect their status as      
restricted securities as aforesaid.                                             

18. Miscellaneous.                                            
-------------                                         

         18.1 Multiple Agreements. The terms of each Option or Award may
differ from other Options or Awards granted under the Plan at the same time, or 
at some other time. The Committee may also grant more than one Option or Award  
to a given Eligible Individual during the term of the Plan, either in addition  
to, or in substitution for, one or more Options or Awards previously granted to 
that Eligible Individual.                                                       

             18.2 Withholding of Taxes. (a) The Company may make such provisions
and take such steps as it may deem necessary or appropriate for the withholding 
of any taxes which the Company is required by any law or regulation of any      
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with any Option or the exercise thereof, any Stock       
Appreciation Right or the exercise thereof, or the grant of any other Award,    
including, but not limited to, the withholding of cash or Shares which would be 
paid or delivered pursuant to such exercise or Award or another exercise of     
Award under this Plan until the Grantee reimburses the Company for the amount   
the Company is required to withhold with respect to such taxes, or canceling any
portion of such Award or another Award under this Plan in an amount sufficient  
to reimburse itself for the amount it is required to so withhold. The Committee 
may permit a Grantee (or any                                                    

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beneficiary or other person authorized to act) to elect to pay a portion or all 
of any amounts required or permitted to be withheld to satisfy federal, state,  
local or foreign tax obligations by directing the Company to withhold a number  
of whole Shares which would otherwise be distributed and which have a Fair      
Market Value sufficient to cover the amount of such required or permitted       
withholding taxes.                                                              

               (b) If an Optionee makes a disposition, within the meaning of
Section 424(c) of the Code and regulations promulgated thereunder, of any Share 
or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock
Option within the two-year period commencing on the day after the date of the   
grant or within the one-year period commencing on the day after the date of     
transfer of such Share or Shares to the Optionee pursuant to such exercise, the 
Optionee shall, within ten (10) days of such disposition, notify the Company    
thereof, by delivery of written notice to the Company at its principal executive
office.                                                                         

            (c) The Committee shall have the authority, at the time of
grant of an Option or Award under the Plan or at any time thereafter, to award  
tax bonuses to designated Optionees or Grantees, to be paid upon their exercise 
of Options or payment in respect of Awards granted hereunder. The amount of any 
such payments shall be determined by the Committee. The Committee shall have    
full authority in its absolute discretion to determine the amount of any such   
tax bonus and the terms and conditions affecting the vesting and payment        
thereof.                                                                        

         19. Effective Date. The effective date of the Plan shall be the date of
its adoption by the Board, subject only to the approval by the holders of a     
majority of the securities of the Company in accordance with the applicable laws
of the State of Delaware within twelve (12) months of such adoption.            

      20. Termination of 1995 Stock Option Plan. Upon the effectiveness of
the Plan, the Company's 1995 Stock Option Plan shall terminate.                 

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Appendix D
Amendment No. 1 to 1998 Stock Incentive Plan

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 AMENDMENT NO. 1
to the
MARVEL ENTERPRISES, INC.
 1998 STOCK INCENTIVE PLAN

         This amendment no. 1 to the Marvel Enterprises, Inc. 1998 Stock
Incentive Plan (this "Amendment") was adopted by the board of directors (the    
"Board of Directors") of Marvel Enterprises, Inc. (the "Company") on September  
5, 2001.                                                                        

 Preliminary Statements:
 -----------------------

          The Board of Directors adopted the Marvel Enterprises, Inc. 1998
Stock Incentive Plan (the "Plan") on November 11, 1998 and the stockholders of  
the Company approved the Plan in December of 1998.                              

           Pursuant to Section 4.1 of the Plan, the maximum number of shares
of common stock, par value $.01 per share, of the Company ("Common Stock") that 
may be made subject of options or stock awards granted under the Plan is        
6,000,000.                                                                      

            The Board of Directors desires to increase the number of shares of
Common Stock issuable pursuant to options or stock awards granted under the     
Plan;                                                                           

Accordingly, the Plan is hereby amended as follows:   

            Section 1. Amendment to Plan. The first sentence of Section 4.1 of
the Plan is hereby deleted and the following sentence shall be substituted in   
lieu thereof:                                                                   

"The maximum number of Shares that may be made the subject of     
Options and Awards granted under the Plan is 16,000,000; provided,
however, that the maximum number of Shares that may be the subject
of Options and Awards granted to any Eligible Individual during   
any calendar year may not exceed 4,000,000 Shares."               

             Section 2. Instruments to Be Read Together. This Amendment shall be
deemed incorporated into and made a part of the Plan. This Agreement and the    
Plan shall henceforth be read together.                                         

         Section 3. Effective Date. The effective date of this Amendment
shall be the date of its adoption by the Board of Directors, subject only to the
approval by the holders of a majority of the securities of the Company in       
accordance with the applicable laws of the State of Delaware within twelve (12) 
months of such adoption.                                                        

        Section 4. Effect on the Plan. Except as specifically modified
above, the terms of the Plan shall remain in full force and effect.             

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Appendix E
 Warrant Agreement

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    WARRANT AGREEMENT, dated as of November 30, 2001 (this
"Agreement"), between Marvel Enterprises, Inc., a Delaware corporation (the     
"Company"), and Isaac Perlmutter (the "Initial Holder").                        

W I T N E S S E T H:
- - - - - - - - - - 

          WHEREAS, HSBC Bank USA requires the personal guaranty of the
Initial Holder (the "Guaranty") in order to extend the Company a line of credit 
(the "HSBC Line of Credit") under the credit agreement to be entered into among 
the Company, the various financial institutions and other persons from time to  
time parties thereto, HSBC Bank USA, as administrative agent for the Lenders and
HSBC Securities (USA), Inc., as sole lead arranger and sole bookrunner (the     
"Credit Agreement"), and the Company desires to have the Initial Holder enter   
into that Guaranty;                                                             

           WHEREAS, in consideration for having the Initial Holder enter
into the Guaranty and if the Initial Holder provides a personal guaranty or     
other credit support (the "Office Guaranty") with respect to the lease for the  
Company's executive offices located at 10 East 40th Street, New York, New York, 
in consideration of the Office Guaranty, the Company desires to grant to the    
Initial Holder warrants to purchase up to Five Million (5,000,000) shares of    
common stock, par value $0.01 per share, of the Company ("Common Stock"),       
subject to the calculation set forth in Section 2.1 herein;                     

         WHEREAS, this Agreement governs the issuance of the Warrant
Certificates (as defined below) and the other matters as provided herein,       
including, without limitation, for the purpose of defining the terms and        
provisions of the Warrants and the respective rights and obligations thereunder 
of the Company and the Initial Holder together with any subsequent record       
holders thereof (together with the holders of shares of Common Stock (or other  
securities) received upon exercise thereof, the "Holders").                     

          NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements contained herein, the Company and the Initial Holder hereby   
agree as follows:                                                               

 ARTICLE I

 CERTAIN DEFINITIONS

               "Acquired Securities" has the meaning specified in Section 7.2(f)
hereof.                                                                         

         "Affiliate" of any specified Person means any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition, 
"control" when used with respect to any Person means the power to direct the    
management and policies of such Person, directly or indirectly, whether through 
the ownership of voting securities, by contract or otherwise; and the terms     
"controlling" and "controlled" have meanings correlative to the foregoing.      

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              "Board" means the board of directors of the Company from time to
time.                                                                           

               "Business Day" means a day except a Saturday, Sunday or other day
on which commercial banks in The City of New York, are authorized by law to     
close.                                                                          

          "Cashless Exercise" has the meaning specified in Section 3.3
hereof.                                                                         

            "Cashless Exercise Ratio" has the meaning specified in Section
3.3 hereof.                                                                     

"Closing Date" means the date hereof.             

         "Common Shares" means the shares of the Common Stock of the
Company.                                                                        

              "Common Stock" means the common stock, par value $.01 per share,
of the Company, and any other capital stock of the Company into which such      
Common Stock may be converted or reclassified or that may be issued in respect  
of, in exchange for or in substitution of such Common Stock by reason of any    
stock splits, stock dividends, distributions, mergers, consolidations or other  
like events.                                                                    

         "Company" has the meaning specified in the recitals to this
Agreement.                                                                      

             "Credit Agreement" has the meaning specified in the recitals to
this Agreement.                                                                 

             "Current Market Value" has the meaning specified in Section 3.3
hereof.                                                                         

               "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.                                                               

            "Exercise Date" means the date upon which a Holder exercises a
Warrant or Warrants in accordance with Section 3.2.                             

               "Exercise Price" has the meaning specified in Section 3.1 hereof.

               "Expiration Date" means the fifth anniversary of the date of this
Agreement.                                                                      

       "Funding Ratio" has the meaning set forth in Section 2.1.

          "Guaranty" has the meaning specified in the recitals to this
Agreement.                                                                      

         "Holders" has the meaning specified in the recitals to this
Agreement.                                                                      

             "Officer" means, with respect to the Company, (i) any member of
the Board, or the Chairman, the President, the Chief Executive Officer, any Vice
President, the Chief Operating Officer or the Chief Financial Officer of the    
Company, any officer of a subsidiary designated by the Board to act as such     
officer of the Company or any other person duly authorized and empowered by the 
Board to execute for and on behalf and in the name of the Company (any officer  
or other person described in this clause (i), a "Senior Officer") and (ii) the  
Treasurer, Assistant Treasurer, the Secretary or an Assistant Secretary of the  
Company or any officer of a subsidiary designated by the Board to act as such   
officer of the Company, provided that in no event shall the terms "Senior       
Officer" or "Officer" include any Holder.                                       

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              "Officers' Certificate" means a certificate signed by one Senior
Officer and one other Officer or by two Senior Officers.                        

           "Parent" means any Person of which the Company is a direct or
indirect subsidiary.                                                            

             "Person" means an individual, corporation, partnership, limited
liability company, joint venture association, joint-stock company trust,        
unincorporated organization, government or agency thereof.                      

          "Private Placement Legend" means the legend set forth on the
Warrant Certificates in the form set forth in Section 2.3.                      

            "Proxy Statement" means the proxy statement distributed to the
Company's stockholders in connection with the Stockholder's Meeting.            

 "SEC" means the Securities and Exchange Commission.

              "Securities Act" means the United States Securities Act of 1933,
as amended.                                                                     

              "Stockholder Approval Date" means the date that the stockholders
of the Company approve of the Warrant Issuance at the Stockholder's Meeting.    

            "Stockholder's Meeting" means the special or annual meeting of
the Company's stockholders to be held for the purpose of considering and taking 
action upon the approval of the Warrant Issuance.                               

           "Subscription Form" means the form on the reverse side of the
Warrant Certificate substantially in the form of Exhibit A hereto.              

         "Warrant" has the meaning specified in the recitals to this
Agreement.                                                                      

             "Warrant Certificates" has the meaning specified in Section 2.1
hereof.                                                                         

              "Warrant Issuance" means the issuance of warrants to the Initial
Holder pursuant to this Agreement.                                              

          "Warrant Shares Registration Rights Agreement" means Warrant
Shares Registration Rights Agreement between the Company and the Initial Holder 
in the form attached hereto as Exhibit B.                                       

             "Warrant Substitution Fee" has the meaning specified in Section
2.5 hereof.                                                                     

ARTICLE II

 ISSUE OF WARRANTS

Section 2.1.  Vesting of Warrants.                              

            Notwithstanding anything to the contrary set forth herein, the
maximum number of Warrants that shall be exercisable pursuant to this Agreement 
at any point in time                                                            

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shall be equal to 5,000,000, multiplied by a fraction (the "Funding Ratio"), the
numerator of which is equal to (i) the maximum amount actually guaranteed by the
Initial Holder of the of the Company's utilization of the HSBC Line of Credit   
prior to May 31, 2003 plus (ii) $10,000,000 plus (iii) the maximum amount of the
Office Guaranty prior to May 31, 2003 and the denominator of which is           
$30,000,000; provided, however, that the Funding Ratio shall in no event be     
greater than an amount equal to 1 and provided further that the Office Guaranty 
shall be included in the numerator only if the Office Guaranty has been approved
by the Board and no more than $5,000,000 shall be included in the numerator in  
respect of the Office Guaranty. Any fractional number of Warrants resulting from
the application of that calculation shall be rounded to the next higher whole   
number of Warrants. To illustrate the application of the formula set forth      
above, if the Initial Holder guarantees 25% of the Company's borrowings and     
reimbursement obligations under the HSBC Line of Credit, and those borrowings   
and reimbursement total $44,000,000 at their greatest amount while the Guaranty 
is in effect prior to May 31, 2003 and the Office Guaranty equals $4,000,000 at 
its greatest amount prior to May 31, 2003, then the numerator of the Funding    
Ratio would be (0.25 x $44,000,000) + $10,000,000 + $4,000,000, for a total of  
$25,000,000, and the Funding Ratio would be 5/6ths.                             

Section 2.2.  Form of Warrant Certificates.                     

  Certificates representing the Warrants (the "Warrant
Certificates") shall be in the form attached hereto as Exhibit A, shall be dated
the date on which such Warrant Certificates are countersigned by a Senior       
Officer (subject to Section 2.4 hereof) and shall have such insertions as are   
appropriate or required or permitted by this Agreement and may have such        
letters, numbers or other marks of identification and such legends and          
endorsements stamped, printed, lithographed or engraved thereon as the Company  
may deem appropriate and as are not inconsistent with the provisions of this    
Agreement, or as may be required to comply with any law or with any rule or     
regulation pursuant thereto or to conform to custom or usage.                   

          The definitive Warrant Certificates shall be typed, printed,
lithographed or engraved or produced by any combination of these methods, all as
determined by the Officer or Officers executing such Warrant Certificates, as   
evidenced by the execution of such Warrant Certificates.                        

Section 2.3.  Restrictive Legends.                              

             The Warrant Certificates shall bear the following legend on the
face thereof:                                                                   

THE SECURITIES EVIDENCED HEREBY ARE NOT TRANSFERABLE, EXCEPT IN 
ACCORDANCE WITH THE WARRANT AGREEMENT.                          

  THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
        UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
     AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
  PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
       SECURITIES ACT IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES.                                    

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Section 2.4.  Issuance of Warrant Certificates.                 

            Warrant Certificates may not be issued by the Company prior to
the Stockholder Approval Date.                                                  

Section 2.5.  Warrant Substitution Fee.                         

    In the event that the Agreement is not approved by the
stockholders of the Company at the Stockholder's Meeting, this Agreement shall  
terminate without action of either party hereto. Upon termination of this       
Agreement pursuant to this Section 2.5 and to the extent permitted under the    
Credit Agreement, the Company shall pay to the Holder an amount equal to Seven  
Million Dollars ($7,000,000) multiplied by the Funding Ratio (the "Warrant      
Substitution Fee"). That payment shall be made within ten days after the date   
that the Credit Agreement has terminated.                                       

 ARTICLE III

EXERCISE PRICE, EXERCISE, REPURCHASE OF WARRANTS AND
REGISTRATION RIGHTS 

Section 3.1.  Exercise Price.                                   

         Each Warrant Certificate shall initially entitle the Holder
thereof, subject to the provisions of this Agreement, to purchase the number of 
Common Shares indicated thereon at a per share purchase price (the "Exercise    
Price") equal to $3.11, subject to adjustment as provided in Section 4.1 and    
Article V hereof.                                                               

Section 3.2.  Exercise; Restrictions on Exercise.               

            At any time after the Stockholder Approval Date and prior to
5:00 p.m. (New York City time) on the Expiration Date, any outstanding Warrants 
may be exercised on any Business Day; provided that Holders of Warrants will be 
able to exercise their Warrants only if the exercise of such Warrants is exempt 
from the registration requirements of the Securities Act, as reasonably         
determined by the Company, and such securities are qualified for sale or exempt 
from qualification under the applicable securities laws of the states or other  
jurisdictions in which such Holders reside. Any Warrants not exercised by 5:00  
p.m., New York City time, on the Expiration Date shall expire and all rights of 
the Holders of such Warrants shall terminate. Additionally, pursuant to Section 
4.1(d) hereof, the Warrants shall expire and all rights of the Holders of such  
Warrants shall terminate in the event the Company merges or consolidates with or
sells all or substantially all of its property and assets to a Person (other    
than an Affiliate of the Company) if the consideration payable to holders of    
Common Stock in exchange for their Common Stock in connection with such merger, 
consolidation or sale consists solely of cash or in the event of the            
dissolution, liquidation or winding up of the Company.                          

Section 3.3.  Method of Exercise; Payment of Exercise Price.    

              In order to exercise all or any of the Warrants represented by a
Warrant Certificate, the Holder thereof must surrender for exercise the Warrant 
Certificate to the Company at its principal executive office, with the          
Subscription Form set forth on the reverse of the Warrant Certificate duly      
executed, together with payment in full of the Exercise Price then in effect for
each Common Share (or other securities) purchasable upon exercise of the        

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Warrants as to which a Warrant is exercised; such payment may be made (i) in    
cash or by certified or official bank check payable to the order of the Company 
or by wire transfer of immediately available funds to an account designated by  
the Company for such purpose, (ii) without the payment of cash (a "Cashless     
Exercise"), by reducing the number of shares of Common Stock that would be      
obtainable upon the exercise of a Warrant and payment of the Exercise Price in  
cash so as to yield a number of shares of Common Stock upon the exercise of such
Warrant equal to the product of (a) the number of shares of Common Stock for    
which such Warrant is exercisable as of the date of exercise (if the Exercise   
Price were being paid in cash) and (b) the Cashless Exercise Ratio, or (iii) a  
combination of (i) and (ii).                                                    

       The "Cashless Exercise Ratio" shall equal a fraction, the
numerator of which is the excess of the Current Market Value per share of Common
Stock on the Exercise Date over the Exercise Price per share as of the Exercise 
Date and the denominator of which is the Current Market Price per share of the  
Common Stock on the Exercise Date. Upon surrender of a Warrant Certificate      
representing more than one Warrant in connection with the Holder's option to    
elect a Cashless Exercise, the number of shares of Common Stock deliverable upon
a Cashless Exercise shall be equal to the number of shares of Common Stock      
issuable upon the exercise of Warrants that the Holder specifies are to be      
exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise   
Ratio. All provisions of the Warrant Agreement shall be applicable with respect 
to a surrender of a Warrant Certificate pursuant to a Cashless Exercise for less
than the full number of Warrants represented thereby.                           

              The "Current Market Value" per share of Common Stock at any date
herein specified shall be the average of the daily closing sale prices (or the  
equivalent in an over-the-counter market) for the security, on the stock        
exchange or over the counter market that is the primary trading market for the  
security, for the 20 consecutive trading days immediately preceding such date.  

    If less than all the Warrants represented by a Warrant
Certificate are exercised, such Warrant Certificate shall be surrendered and a  
new Warrant Certificate of the same tenor and for the number of Warrants which  
were not exercised shall be executed by the Company and delivered to the Holder.
Upon the exercise of any Warrants following the surrender of a Warrant          
Certificate in conformity with the foregoing provisions, the Company shall      
transfer promptly to the Holder appropriate evidence of ownership of any Common 
Shares or other securities or property to which the Holder is entitled as a     
result of exercise, at the Company's option, an amount in cash, in lieu of any  
fractional shares, as provided in Section 4.4 hereof.                           

              Upon the exercise of a Warrant or Warrants, the Company shall as
promptly as practicable but not later than 14 Business Days after such exercise 
enter, or cause any transfer agent of the Common Shares to enter, the name of   
the person entitled to receive the Common Shares upon exercise of such Warrants 
into the Company's register of stockholders. Thereupon, the Company or the      
applicable transfer agent shall issue certificates for the necessary number of  
Common Shares to which said Holder is entitled.                                 

      A Warrant shall be deemed by the Company to be exercised
immediately prior to the close of business on the date of surrender for         
exercise, as provided above, of the Warrant Certificate representing such       
Warrant and, for all purposes under this Agreement, the Holder shall receive the
Common Shares the Holder would have been entitled to had it been the registered 
holder on such date, except that for purposes of transferring the Common Shares 
or voting in a general stockholders' meeting, the Holder shall, in its relation 
with the Company, be deemed to be the holder thereof only when such Common      
Shares are entered in                                                           

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the register of stockholders in the name of such person; provided, however,     
that, with respect to Warrants which have been exercised but for which the      
corresponding Common Shares have not been recorded in the register of           
stockholders, the provisions of Article IV shall continue to apply as if the    
number of Warrants held prior to exercise remained outstanding on the date of   
any action or event of the type giving rise to an adjustment under Article IV.  

Section 3.4.  Registration Rights.                              

            The Common Shares issuable upon exercise of the Warrants shall
have the registration rights as set forth in the Warrant Shares Registration    
Rights Agreement in the form attached hereto as Exhibit B.                      

ARTICLE IV

 ADJUSTMENTS

Section 4.1.  Adjustments.                                      

          The Exercise Price and the number of Common Shares (or other
securities) purchasable upon exercise of each Warrant shall be subject to       
adjustment from time to time as follows (subject in each case to Section 4.1(e) 
hereof):                                                                        

         (a) Divisions; Combinations, Reclassifications. In case the
Company shall, on or before the Expiration Date, (i) issue any Common Shares or 
other capital stock of the Company in payment of a dividend or other            
distribution with respect to its Common Shares, (ii) subdivide its issued and   
outstanding Common Shares, (iii) combine its issued and outstanding Common      
Shares into a smaller number of shares, (iv) reclassify or convert the Common   
Shares (other than a reclassification in connection with a merger, consolidation
or other business combination which will be governed by Section 4.1(d)) or (v)  
distribute to all holders of its Common Shares any of the Company's assets, debt
securities or any options, warrants or rights to purchase securities, then the  
number of Common Shares purchasable upon exercise of each Warrant immediately   
prior to the record date for such issue or distribution or the effective date of
such subdivision, consolidation, reclassification or conversion shall be        
adjusted so that the Holder of each Warrant shall thereafter be entitled to     
receive the kind and number of Common Shares which such Holder would have been  
entitled to receive after the happening of any of the events described above had
such Warrant been exercised immediately prior to the happening of such event or 
any record date with respect thereto. An adjustment made pursuant to this       
Section 4.1(a) shall become effective immediately after the effective date of   
such event retroactive to the record date, if any, for such event.              

               (b) De Minimus Adjustments. No adjustment in the number of Common
Shares (or other securities) purchasable hereunder or in the Exercise Price     
shall be required unless such adjustment would require an increase or decrease  
of at least 0.15% in the number of Common Shares (or other securities)          
purchasable upon the exercise of each Warrant or in the Exercise Price;         
provided, however, that any adjustments which by reason of this Section 4.1(b)  
are not required to be made shall be carried forward and taken into account in  
any subsequent adjustment. All calculations shall be made to the nearest        
one-thousandth of a share.                                                      

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          (c) Adjustment of Exercise Price. (i) Whenever the number of
Common Shares purchasable upon the exercise of each Warrant is adjusted, as     
herein provided, the Exercise Price per Common Share payable upon exercise of   
such Warrant shall be adjusted (calculated to the nearest $.01) so that it shall
equal the price determined by multiplying such Exercise Price immediately prior 
to such adjustment by a fraction the numerator of which shall be the number of  
Common Shares purchasable upon the exercise of each Warrant immediately prior to
such adjustment and the denominator of which shall be the number of Common      
Shares so purchasable immediately thereafter.                                   

             (ii) Following any adjustment to the Exercise Price pursuant to
        this Article IV, the Adjusted Exercise Price shall never be less than an
       amount (such amount per Common Share, the "Minimum Price") equal to the
        par value per Common Share at the time of such adjustment, except to the
       extent permitted by applicable law. "Adjusted Exercise Price" means the
       Exercise Price payable per Common Share, when adjusted pursuant to this
Article IV.                                                     

               (iii) If, following any adjustment to the Exercise Price pursuant
        to this Article IV, the Minimum Price is payable at the time of exercise
       by the Holder, and but for the provisions of the preceding clause (ii),
    the Adjusted Exercise Price would (except to the extent permitted by
      applicable law) equal an amount that is less than the Minimum Price at
      the time of such adjustment (such lesser amount, the "Sub-Par Price"),
  the Company will take such action that the Board may in good faith
     determine is fair and appropriate to protect the rights of the Holder
        against dilution or other impairment as contemplated by this Article IV;
       provided, however, that no such action shall cause the aggregate amount
  payable per Warrant, after giving effect to this clause (iii) (and
        taking into account any payments to be received hereunder) to be greater
   than the aggregate amount payable per Warrant which would have been
   payable but for the preceding clause (ii). Such action may include,
without limitation:                                             

                      (A) payment to the Holder of liquidated damages per Common
             Share purchasable upon Exercise equal to the Minimum Price less
the Sub-Par Price; or                             

                     (B) reduction, if permitted by applicable law, of the par
value per Common Share.                           

              Any such payment shall be made or any other such action shall be
    consummated not later than the earlier of (a) 180 days following the
      consummation of the transaction giving rise to such adjustment and (b)
       with respect to each Warrant, on the date such Warrant is exercised. If
such transaction is annulled, rescinded, revoked, or reversed or
    otherwise canceled, or any subsequent adjustment is made pursuant to
        this Article IV such that the adjusted Exercise Price is greater than or
      equal to the Minimum Price (without applying the preceding clause (ii)
      to that or any preceding adjustment pursuant to this Article IV), then
        (x) in the case of such a payment, if such payment has not yet been made
 to a Holder by the Company (or by any agent of the Company), such
     payment may be annulled, rescinded, revoked or otherwise canceled and
      any deposit made in respect thereof returned to the Company and (y) in
     the case of any such other action, such other action may be annulled,
rescinded, revoked, reversed or otherwise canceled.             

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              (iv) If after an adjustment, a Holder of a Warrant upon exercise
     of it may receive shares of two or more classes in the capital of the
   Company, the Company shall determine the allocation of the adjusted
        Exercise Price between such classes of shares in a manner that the Board
  deems fair and equitable to the Holder. After such allocation, the
       exercise privilege and the Exercise Price of each class of shares shall
thereafter be subject to adjustment on terms comparable to those
applicable to Common Shares in this Article IV.                 

               (v) Such adjustment shall be made successively whenever any event
listed above shall occur.                                       

              (d) Consolidation, Merger, Etc. (i) Subject to the provisions of
Subsection (ii) below of this Section 4.1(d), in case of the consolidation of   
the Company with, or merger of the Company with or into, or of the sale of all  
or substantially all of the properties and assets of the Company to, any Person,
and in connection therewith consideration is payable to holders of Common Shares
(or other securities or property purchasable upon exercise of Warrants) in      
exchange therefor, the Warrants shall remain subject to the terms and conditions
set forth in this Agreement and each Warrant shall, after such consolidation,   
merger or sale, entitle the Holder to receive upon exercise the number of shares
in the capital or other securities or property (including cash) of or from the  
Person resulting from such consolidation or surviving such merger or to which   
such sale shall be made or of the parent of such Person, as the case may be,    
that would have been distributable or payable on account of the Common Shares   
(or other securities or property purchasable upon exercise of Warrants) if such 
Holder's Warrants had been exercised immediately prior to such merger,          
consolidation or sale (or, if applicable, the record date therefor); and in any 
such case the provisions of this Agreement with respect to the rights and       
interests thereafter of the Holders of Warrants shall be appropriately adjusted 
by the Board in good faith so as to be applicable, as nearly as may reasonably  
be, to any shares, other securities or any property thereafter deliverable on   
the exercise of the Warrants.                                                   

              (ii) Notwithstanding the foregoing, (x) if the Company merges or
        consolidates with, or sells all or substantially all of its property and
    assets to, another Person and consideration is payable to holders of
    Common Shares in exchange for their Common Shares in connection with
        such merger, consolidation or sale which consists solely of cash, or (y)
 in the event of the dissolution, liquidation or winding up of the
  Company, then the Holders of Warrants shall be entitled to receive
        payments or distributions as of the date of such event on an equal basis
with, and on the same day as, holders of Common Shares (or other
        securities purchasable upon exercise of the Warrants) as if the Warrants
        had been exercised immediately prior to such event, less an amount equal
       to the Exercise Price. Upon receipt of such payment, if any, the rights
      of a Holder shall terminate and cease and such Holder's Warrants shall
        expire. In case of any such merger, consolidation or sale of assets, the
  surviving or acquiring Person or, in the event of any dissolution,
      liquidation or winding up of the Company, after receipt of surrendered
       Warrant Certificates from the Holder, the Company shall make payment by
       delivering a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is   
appropriate) to the Holder.                                     

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Section 4.2.  Statement on Warrants.                            

         Irrespective of any adjustment in the Exercise Price or the
number or kind of shares purchasable upon the exercise of the Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and     
number and kind of shares as are stated in the Warrants initially purchasable   
pursuant to this Agreement.                                                     

Section 4.3.  Notice of Consolidation, Merger, Etc.             

               In case at any time after the date hereof and prior to 5:00 p.m.,
New York City time, on the Expiration Date, there shall be any (i) consolidation
or merger involving the Company or sale, transfer or other disposition of all or
substantially all of the Company's property, assets or business (except a merger
or other reorganization in which the Company shall be the surviving corporation 
and holders of Common Shares receive no consideration in respect of their       
shares) or (ii) any other transaction contemplated by Section 4.1(d)(ii) above, 
then, in any one or more of such cases, the Company shall mail, at the Company's
expense, to the Holders, at the earliest practicable time (and, in any event,   
not less than 20 days before any date set for definitive action), notice of the 
date on which such reorganization, sale, consolidation, merger, dissolution,    
liquidation or winding up shall take place, as the case may be. Such notice     
shall also set forth such facts as shall indicate the effect of such action (to 
the extent such effect may be known at the date of such notice) on the Exercise 
Price and the kind and amount of the Common Shares and other securities, money  
and other property deliverable upon exercise of the Warrants. Such notice shall 
also specify the date as of which the holders of record of the Common Shares or 
other securities or property purchasable upon exercise of the Warrants shall be 
entitled to exchange their shares for securities, money or other property       
deliverable upon such reorganization, sale, consolidation, merger, dissolution, 
liquidation or winding up, as the case may be.                                  

Section 4.4.  Fractional Interests.                             

             If more than one Warrant shall be presented for exercise in
full at the same time by the same Holder, the number of full Common Shares which
shall be purchasable upon such exercise thereof shall be computed on the basis  
of the aggregate number of Common Shares purchasable on exercise of the Warrants
so presented. The Company shall not be required to issue fractional Common      
Shares upon the exercise of Warrants. If any fraction of a Common Share would,  
except for the provisions of this Section 4.4, be purchasable on the exercise of
any Warrant (or specified portion thereof), the Company may (i) pay an amount in
cash, calculated by it to be equal to the then Current Market Value per Common  
Share multiplied by such fraction computed to the nearest whole cent or (ii)    
deliver a whole Common Share.                                                   

Section 4.5.  When Issuance or Payment May Be Deferred.         

            In any case in which this Article IV shall require that an
adjustment in the Exercise Price be made effective as of a record date for a    
specified event, the Company may elect to defer until the occurrence of such    
event (i) issuing to the holder of any Warrant exercised after such record date 
the Common Shares and other shares in the capital of the Company, if any,       
purchasable upon such exercise over and above the Common Shares and other shares
in the capital of the Company, if any, purchasable upon such exercise and (ii)  
paying such holder any amount in cash in lieu of a fractional share; provided,  
however, that the Company shall deliver to such Holder a due bill or other      
appropriate instrument                                                          

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evidencing such Holder's right to receive such additional Common Shares, other  
shares and cash upon the occurrence of the event requiring such adjustment.     

Section 4.6.  Par Value; Valid Issuance.                        

                The Company will not increase the par value of the Common Shares
above the Exercise Price (as adjusted hereunder from time to time), except to   
the extent required by applicable law. The Company will take all such corporate 
action, to the extent permitted by applicable law (including, without           
limitation, reducing the par value thereof), as may be necessary or appropriate 
in order that the Company may validly and legally issue stock upon the exercise 
of Warrants.                                                                    

 ARTICLE V

DECREASE IN EXERCISE PRICE

            The Board, in its sole discretion, shall have the right at any
time, or from time to time, to decrease the Exercise Price of the Warrants      
and/or increase the number of shares issuable upon the exercise of the Warrants.

ARTICLE VI

LOSS OR MUTILATION

               Upon receipt by the Company of evidence satisfactory to it of the
ownership and the loss, theft, destruction or mutilation of any Warrant         
Certificate and of indemnity or bond satisfactory to it and (in the case of     
mutilation) upon surrender and cancellation thereof, then, in the absence of    
notice to the Company that the Warrants represented thereby have been acquired  
by a bona fide purchaser, the Company shall execute and deliver to the          
registered Holder of the lost, stolen, destroyed or mutilated Warrant           
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of   
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Article VI, the Company may require the  
payment of a sum sufficient to cover any tax or other governmental charge that  
may be imposed in relation thereto and other expenses in connection therewith.  
Every new Warrant Certificate executed and delivered pursuant to this Article VI
in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a 
contractual obligation of the Company whether or not the allegedly lost, stolen 
or destroyed Warrant Certificates shall be at any time enforceable by anyone and
shall be entitled to the benefits of this Agreement equally and proportionately 
with any and all other Warrant Certificates duly executed and delivered         
hereunder. The provisions of this Article VI are exclusive and shall preclude   
(to the extent lawful) all other rights or remedies with respect to the         
replacement of mutilated, lost, stolen, or destroyed Warrant Certificates.      

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 ARTICLE VII

 REPRESENTATIONS, WARRANTIES AND COVENANTS

       Section 7.1. Representations and Warranties of the Company. The Company
represents and warrants to the Initial Holder that the following representations
and warranties are, as of the date hereof, true and correct with respect to the 
Company:                                                                        

    (a)    Authorization. The execution, delivery and performance by the
Company of this Agreement has been duly authorized by all requisite corporate   
action by the Company, and this Agreement has been duly executed and delivered  
by the Company and constitutes a legal, valid and binding obligation of the     
Company, enforceable in accordance with its terms, subject to applicable        
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting   
creditors' rights generally and to general principles of equity.                

  (b)    No Conflict. The execution, delivery and performance by the
Company of this Agreement and the consummation of the transactions contemplated 
hereby will not: (i) violate any provision of law, statute, rule or regulation, 
or any ruling, writ, injunction, order, judgment or decree of any court,        
administrative agency or other governmental authority applicable to the Company;
or (ii) conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute (with due notice or lapse of time, or both) a      
default (or give rise to any right of termination, cancellation or acceleration)
under, the Certificate of Incorporation or By-laws, or under any material       
contract or instrument to which the Company is a party or by which it or any of 
its property is bound or affected.                                              

        (c)    No Consent or Approval Required. Except for (i) the filing of any
notice subsequent to the date hereof that may be required under applicable      
federal securities laws (which, if required, shall be filed on a timely basis as
may be so required), and (ii) the approval of the Warrant Issuance pursuant to  
this Agreement by the stockholders of the Company, no permit, consent, approval 
or authorization of, or declaration to, or filing with, any Person is required  
for the valid authorization, execution, delivery and performance by the Company 
of this Agreement or for the valid authorization, issuance, sale and delivery of
the issuance of the Warrants pursuant to this Agreement, or the carrying out by 
the Company of the transactions contemplated hereby.                            

      (d)    No Broker. The Company has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.                

      (e)    Rights Agreement. The Company has amended the Rights Agreement,
dated as of August 22, 2000, between the Company and American Stock Transfer &  
Trust Company as Rights Agent (the "Rights Agreement") to exempt the Initial    
Holder from becoming an Acquiring Person (as such term is defined in the Rights 
Agreement) under the Rights Agreement as a result of issuance of the Warrants as
contemplated under this Agreement or the acquisition of Common Stock upon       
exercise of the Warrants.                                                       

      Section 7.2. Representations and Warranties of the Initial Holder. The
Initial Holder represents and warrants to the Company that the following        
representations and warranties are, as of the date hereof, true and correct with
respect to the Initial Holder:                                                  

(a)    Authorization. This Agreement has been duly executed and 
delivered by the Initial Holder and constitutes a legal, valid and binding      
obligation of the Initial Holder,                                               

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enforceable in accordance with its terms, subject to applicable bankruptcy,     
reorganization, insolvency, moratorium and similar laws affecting creditors'    
rights generally and to general principles of equity.                           

  (b)    No Conflict. The execution, delivery and performance by the
Initial Holder of this Agreement and the consummation of the transactions       
contemplated hereby will not: (i) violate any provision of law, statute, rule or
regulation, or any ruling, writ, injunction, order, judgment or decree of any   
court, administrative agency or other governmental authority applicable to the  
Initial Holder; or (ii) conflict with or result in any breach of any of the     
terms, conditions or provisions of, or constitute (with due notice or lapse of  
time, or both) a default (or give rise to any right of termination, cancellation
or acceleration) under any material contract or instrument to which the Initial 
Holder is a party or by which he or any of his property is bound or affected.   

   (c)    No Broker. The Initial Holder has not employed any broker or
finder in connection with the transactions contemplated by this Agreement.      

(d)    Investment; Accredited Investor.                         

          (i) The Initial Holder acknowledges that the Warrant and the
Common Stock underlying the Warrant (collectively, the "Acquired Securities")   
have not been registered under the Securities Act or under any state securities 
laws and may not be offered or sold within the United States, except pursuant to
an effective registration statement under the Securities Act, or pursuant to an 
exemption from, or in a transaction not subject to, the registration            
requirements of the Securities Act. The Initial Holder has not offered or sold, 
and will not offer or sell the Acquired Securities, except pursuant to an       
effective registration statement under the Securities Act, or pursuant to an    
exemption from, or in a transaction not subject to, the registration            
requirements of the Securities Act.                                             

        (ii) The Initial Holder is acquiring the Warrant, and upon
exercise of the Warrant, the Initial Holder will be purchasing the Common Stock 
underlying the Warrant, solely for his own account for investment purposes and  
not with a view to the resale, transfer or distribution thereof, nor with any   
present intention of distributing such securities.                              

             (iii) The Initial Holder is an "accredited investor" within the
definition set forth in Rule 501(a) promulgated under the Securities Act, and   
possesses such knowledge and experience in financial and business matters so    
that it is capable of evaluating the risks and merits of his investment in the  
Company as contemplated by this Agreement.                                      

          (iv) The Initial Holder is familiar with the business of the
Company, has been furnished access to such information and documents as he has  
requested and has been afforded an opportunity to ask questions of and receive  
answers from representatives of the Company concerning the terms and conditions 
of the acquisition of the Warrant and the business and financial condition of   
the Company.                                                                    

         (v) The Initial Holder is able to bear the economic risk of
holding the Acquired Securities for an indefinite period and can afford to      
suffer the complete loss of his investment in the Acquired Securities.          

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Section 7.3.  Covenants.                                        

               The Company shall, subject to the following article, at all times
reserve and keep available such number of its authorized but unissued Common    
Shares deliverable upon exercise of the Warrants as will be sufficient to permit
the exercise in full of all outstanding Warrants. The Company covenants that all
Common Shares (or other securities) that may be issued upon the exercise of the 
Warrants will, upon issuance, be duly and validly issued, fully paid and        
nonassessable, free of pre-emptive rights and free from all taxes, liens,       
charges and security interests created by or through the Company.               

ARTICLE VIII

WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER

Section 8.1.  Transfer and Exchange.                            

               The Warrant Certificates shall be issued in registered form only.
The Warrants shall not be transferable, except as provided in the next          
paragraph. The Company shall keep at its office a register for the registration 
of Warrant Certificates and transfers or exchanges of Warrant Certificates as   
herein provided.                                                                

               A Holder may transfer its Warrants only to the Initial Holder and
Affiliates of the Initial Holder and only by written application to the Company 
stating the name of the proposed transferee and otherwise complying with the    
terms of this Agreement. No such transfer shall be effected until, and such     
transferee shall succeed to the rights of a Holder only upon, final acceptance  
and registration of the transfer by the Company in the register. Prior to the   
registration of any transfer of Warrants by a Holder as provided herein, the    
Company and any agent of the Company may treat the person in whose name the     
Warrants are registered as the owner thereof for all purposes and as the person 
entitled to exercise the rights represented thereby, any notice to the contrary 
notwithstanding. When Warrant Certificates are presented to the Company with a  
request to register the transfer or to exchange them for an equal amount of     
Warrants of other authorized denominations, the Company shall register such     
transfer or make such exchange as requested if its requirements for such        
transactions are met.                                                           

Section 8.2.  Special Transfer Provisions.                      

        By its acceptance of any Warrants represented by a Warrant
Certificate, each Holder of such Warrants acknowledges the restrictions on      
transfer of such Warrants set forth in this Agreement and in the Private        
Placement Legend and agrees that it will transfer such Warrants only as provided
in this Agreement. The Company shall not register a transfer of any Warrants    
unless such transfer complies with the restrictions on transfer of such Warrants
set forth in this Agreement. In connection with any transfer of Warrants, each  
Holder agrees by its acceptance of Warrants to furnish the Company such evidence
that the transferee is the Initial Holder or an Affiliate of the Initial Holder 
and, if such transfer is not being made pursuant to an effective registration   
statement under the Securities Act, with such certifications, legal opinions or 
other information as the Company may reasonably require to confirm that such    
transfer is being made pursuant to an exemption from, or a transaction not      
subject to, the registration requirements of the Securities Act and otherwise in
compliance with this Agreement.                                                 

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ARTICLE IX

 WARRANT HOLDERS

Section 9.1.  Warrant Holder Deemed Not a Stockholder.          

            The Company may deem and treat the registered Holder(s) of the
Warrant Certificates as the absolute owner(s) thereof (notwithstanding any      
notation of ownership or other writing thereon made by anyone), for the purpose 
of any exercise thereof and for all other purposes, and the Company shall not be
affected by any notice to the contrary. Accordingly, the Company shall not,     
except as ordered by a court of competent jurisdiction as required by law, be   
bound to recognize any equitable or other claim to or interest in the Warrants  
on the part of any person other than such registered Holder, whether or not it  
shall have express or other notice thereof. Prior to the exercise of the        
Warrants, no Holder of a Warrant Certificate, as such, shall be entitled to any 
rights of a stockholder of the Company, including, without limitation, the right
to vote or to consent to any action of the stockholders, except as otherwise    
provided in this Agreement, to receive dividends or other distributions, to     
exercise any preemptive right or to receive any notice of meetings of           
stockholders and, except as otherwise provided in this Agreement, shall not be  
entitled to receive any notice of any proceedings of the Company.               

Section 9.2.  Right of Action.                                  

               All rights of action with respect to this Agreement are vested in
the Holders of the Warrants, and any Holder of any Warrant, may, on such        
Holder's own behalf and for such Holder's own benefit, enforce, and may         
institute and maintain any suit, action or proceeding against the Company       
suitable to enforce, or otherwise in respect of, such Holder's right to exercise
such Warrants in the manner provided in the Warrant Certificate representing    
such Warrants and in this Agreement.                                            

 ARTICLE X

 MISCELLANEOUS

Section 10.1. Payment of Taxes.                                 

              Subject to Article VI hereof, all Common Shares purchasable upon
the exercise of Warrants shall be validly issued, fully paid and not subject to 
any calls for funds, and the Company shall pay any taxes and other governmental 
charges that may be imposed under the laws of the United States of America or   
any political subdivision or taxing authority thereof or therein in respect of  
the issue or delivery thereof upon exercise of Warrants (other than taxes on or 
measured by income imposed on any Holder). The Company shall not be required,   
however, to pay any tax or other charge imposed in connection with any transfer 
involved in the issue of any certificate for Common Shares (including other     
securities or property purchasable upon the exercise of the Warrants) or payment
of cash to any Person other than the Holder of a Warrant Certificate surrendered
upon the exercise of a Warrant and in case of such transfer or payment, the     
Company shall not be required to issue any share certificate or pay any cash    
until such tax or charge has been paid or it has been established to the        
Company's satisfaction that no such tax or charge is due.                       

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        Section 10.2. No Merger, Consolidation or Sale of Assets of the Company.

             Except as otherwise provided herein, the Company will not merge
into or consolidate with any other Person, or sell or otherwise transfer all or 
substantially all of its property and assets to any Person, unless the entity   
resulting from such merger or consolidation, or such Person, shall expressly    
assume the due and punctual performance and observance of each and every        
covenant and condition of this Agreement or contained in the Warrants to be     
performed and observed by the Company.                                          

Section 10.3.  Notices; Payment.                                

             (a) Any notice, demand or delivery authorized by this Agreement
shall be sufficiently given or made when mailed, if sent by first class mail,   
postage prepaid, addressed to any Holder of a Warrant at such Holder's last     
known address appearing on the register of the Company and to the Company as    
follows:                                                                        

To the Company:                                   

Marvel Enterprises, Inc.                          
10 East 40th Street                               
9th Floor                                         
New York, New York  10018                         
Fax No.: 917-472-2244                             
Attention: General Counsel                        

or such other address as shall have been furnished to the party giving or making
such notice, demand or delivery. Any notice that is mailed in the manner herein 
provided shall be conclusively presumed to have been duly given when mailed,    
whether or not the Holder receives the notice.                                  

           (b) Payment of the Exercise Price shall be made in accordance
with the provisions of this Agreement at the principal executive office of the  
Company set forth above.                                                        

               (c) Any notice required to be given by the Company to the Holders
shall be made by mailing by registered mail, return receipt requested, to the   
Holders at their last known addresses appearing on the register maintained by   
the Company. Any notice that is mailed in the manner herein provided shall be   
conclusively presumed to have been duly given when mailed, whether or not the   
Holder receives the notice.                                                     

Section 10.4.  Binding Effect.                                  

              This Agreement shall be binding upon and inure to the benefit of
the Company and its respective successors and assigns, and the Holders from time
to time of the Warrants. Nothing in this Agreement is intended or shall be      
construed to confer upon any Person, other than the Company and the Holders of  
the Warrants, any right, remedy or claim under or by reason of this Agreement or
any part hereof.                                                                

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Section 10.5.  Counterparts.                                    

            This Agreement may be executed manually or by facsimile in any
number of counterparts, each of which shall be deemed an original, but all of   
which together constitute one and the same instrument.                          

Section 10.6.  Amendments.                                      

        The Company may, without the consent or concurrence of the
Holders of the Warrants, by supplemental agreement or otherwise, make any       
changes or corrections in this Agreement that (a) are required to cure any      
ambiguity or to correct any defective or inconsistent provision or clerical     
omission or mistake or manifest error herein contained or (b) add to the        
covenants and agreements of the Company in this Agreement further covenants and 
agreements of the Company thereafter to be observed, or surrender any rights or 
power reserved to or conferred upon the Company in this Agreement; provided that
in either case such changes or corrections do not and will not materially       
adversely affect, alter or change the rights, privileges or immunities of the   
Holders of Warrants. Any other amendment or supplement to this Agreement may be 
effected with the written consent of the Holders of a majority of the then      
outstanding Warrants. The consent of each Holder of the Warrants affected is    
required for any amendment pursuant to which the Exercise Price would be        
increased or the number of Common Shares (or other securities) issuable upon    
exercise of Warrants would be decreased (other than pursuant to Article IV of   
this Agreement).                                                                

Section 10.7.  Headings.                                        

      The descriptive headings of the several Sections of this
Agreement are inserted for convenience only and shall not control or affect the 
meaning or construction of any of the provisions hereof.                        

Section 10.8. Common Shares Legend.                             

              Unless and until the Common Shares purchasable upon the exercise
of the Warrants are registered under the Securities Act, or unless otherwise    
agreed by the Company and the Holder thereof, such Common Shares will bear a    
legend to the following effect:                                                 

  THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
        UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
     AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
  PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
       SECURITIES ACT IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES.                                    

Section 10.9. Termination.                                      

        Unless terminated earlier pursuant to this Agreement, this
Agreement shall terminate at 5:00 p.m. (New York City time) on the Expiration   
Date. Notwithstanding the foregoing, this Agreement shall terminate on any      
earlier date as of which all Warrants have been exercised. The Company shall    
have the right to terminate this Agreement at any time prior to December 31,    
2001 (time being of the essence) if the Company receives an                     

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unsolicited guaranty provided by a third party on terms and conditions which, in
the good faith judgment of the Board of Directors, are significantly more       
favorable to the Company than the terms and conditions (including the terms of  
this Agreement) upon which the Initial Holder has provided the Guaranty and the 
Administrative Agent accepts such unsolicited guaranty as a substitute for the  
Guaranty and releases the Initial Holder from all liability under the Guaranty  
no later than December 31, 2001; provided, however, that the Company may not    
terminate this Agreement unless it has provided the Initial Holder with at least
2 days notice of such unsolicited guaranty.                                     

Section 10.10  Method of Payment.                               

             The U.S. dollar is the sole currency of account and payment for
all sums payable by the Company or the Holders under or in connection with the  
Warrants, including damages.                                                    

Section 10.11.  Governing Law.                                  

              This Agreement shall be governed by the laws of the State of New
York. The Company and the Holders agree to submit to the jurisdiction of the    
courts of the State of New York in any action or proceeding arising out of or   
related to this Agreement or the Warrants.                                      

(signature page follows)

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              IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed, as of the day and year first above written.                      

                                MARVEL ENTERPRISES, INC.

                                         By ______________________________
                   Name:
                    Title:

                           THE INITIAL HOLDER:

                               By /s/ Isaac Perlmutter
                                             -------------------------------
                              Isaac Perlmutter

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                                                                       EXHIBIT A

 FORM OF WARRANT CERTIFICATE

MARVEL ENTERPRISES, INC.

 [___________]

No. _____                                                                       

WARRANTS TO PURCHASE COMMON SHARES

             This certifies that [___________] or its registered assigns, is
the owner of ______ Warrants, each of which represents the right to purchase    
from Marvel Enterprises, Inc., a Delaware corporation (the "Company"), at any   
time beginning ___________ __, 200_ and prior to the Expiration Date (as defined
in the Warrant Agreement referred to below), _______ shares of the common stock,
$.01 par value per share, of the Company (the "Common Shares") at a per share   
exercise price (the "Exercise Price") equal to $______ (subject to adjustment as
provided in the Warrant Agreement), upon surrender hereof at the Company, with  
the Subscription Form on the reverse hereof duly executed with simultaneous     
payment in full by wire transfer of immediately available funds or by certified 
or official bank or bank cashier's check payable to the order of the Company. At
any time on or before the Expiration Date, any outstanding Warrants may be      
exercised on any Business Day (as defined in the Warrant Agreement); provided   
that the Holders of Warrants shall be able to exercise their Warrants only if   
the exercise of such Warrants is exempt from the registration requirements of   
the Securities Act of 1933, as amended, as reasonably determined by the Company,
and such securities are qualified for sale or exempt from qualification under   
the applicable securities laws of the states or other jurisdictions in which    
such Holder resides.                                                            

               This Warrant Certificate is issued under and in accordance with a
Warrant Agreement dated as of November 30, 2001 (the "Warrant Agreement"),      
between the Company and Isaac Perlmutter, and is subject to the Articles of     
Incorporation of the Company and to the terms and provisions contained therein, 
to all of which terms and provisions the holder of this Warrant Certificate     
consents by acceptance hereof. The terms of the Warrant Agreement and the       
Warrant Shares Registration Rights Agreement are hereby incorporated herein by  
reference and made a part hereof. Reference is hereby made to the Warrant       
Agreement for a full description of the rights, limitations of rights,          
obligations, duties and immunities thereunder of the Company and the Holders of 
the Warrants. The summary of the terms of the Warrant Agreement and the Warrant 
Shares Registration Rights Agreement contained in this Warrant Certificate is   
subject to and qualified in its entirety by express reference to the Warrant    
Agreement. To the extent permitted by applicable law, in the event of any       
inconsistency between the terms of this Warrant and the terms of the Warrant    
Agreement, the terms of the Warrant Agreement shall govern. All terms used in   
this Warrant Certificate that are defined in the Warrant Agreement and the      
Warrant Shares Registration Rights Agreement shall have the meanings assigned to
them in such agreements.                                                        

             This Warrant Certificate shall be void and all rights evidenced
hereby shall cease on the Expiration Date, unless sooner terminated by the      
liquidation, dissolution or winding-up of the Company or as otherwise provided  
in the Warrant Agreement upon the                                               

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consolidation or merger of the Company with, or sale of the Company to, another 
Person or unless such date is extended as provided in the Warrant Agreement.    

             The Warrant Agreement and the Warrants shall be governed by the
laws of the State of New York. The Company and the Holders agree to submit to   
the jurisdiction of the courts of the State of New York in any action or        
proceeding arising out of or related to this Agreement or the Warrants.         

                                MARVEL ENTERPRISES, INC.

                                      By:  _________________________
                       Name:
                        Title:

Dated: _________, 200_                                                

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FORM OF REVERSE OF WARRANT CERTIFICATE

 SUBSCRIPTION FORM

(To be executed only upon exercise of Warrant)

To: Marvel Enterprises                                                  
10 East 40th Street                                             
9th Floor                                                       
New York, NY  10018                                             
Telecopier No.: ______________                                  

Attention:                                                              

            The undersigned irrevocably exercises ________ of the Warrants
represented by this Warrant Certificate and herewith makes payment of $ _______ 
(such payment being in cash or by certified or official bank or bank cashier's  
check payable to the order or at the direction of Marvel Enterprises, Inc. or   
pursuant to a Cashless Exercise on the terms and conditions specified in this   
Warrant Certificate and in the Warrant Agreement referred to herein) and        
surrenders this Warrant Certificate and all right, title and interest therein to
and directs that the common stock, par value $.01 per share, of Marvel          
Enterprises, Inc. (the "Common Shares") deliverable upon the exercise of such   
Warrants be registered or placed in the name and at the address specified below 
and delivered thereto.                                                          

Dated:                       _______________________________                    
    (Signature of Owner)

               _______________________________
(Street Address)

               _______________________________
               (City)    (State)    (Zip Code)

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FORM OF ASSIGNMENT

           The undersigned registered Holder of this Warrant Certificate
hereby sells, assigns, and transfers unto the Assignee(s) named below (including
the undersigned with respect to any Warrants constituting a part of the Warrants
evidenced by this Warrant Certificate not being assigned hereby) all of the     
right of the undersigned under this Warrant Certificate, with respect to the    
number of Warrants set forth below:                                             

Name(s) of Assignee(s):  _____________________________________                  

Address:  ____________________________________________________                  

No. of Warrants:  ____________________________________________                  

Please insert social security or other identifying number of assignee(s):       

and does hereby irrevocably constitute and appoint the Secretary of Marvel      
Enterprises, Inc. the undersigned's attorney to make such transfer on the books 
of Marvel Enterprises, Inc. maintained for the purposes, with full power of     
substitution in the premises.                                                   

In connection with any transfer of Warrants, the undersigned confirms that the  
transfer of the Warrants is exempt from registration under the Securities Act of
1933, as amended, and that the Assignee(s) is the Initial Holder or an Affiliate
of the Initial Holder. The undersigned understands that the Company shall not be
obligated to register the Warrants in the name of any Person other than the     
Holder hereof unless and until the conditions to any such transfer of           
registration set forth herein and in Article VIII of the Warrant Agreement shall
have been satisfied.                                                            

Dated:                                                                          
                                       _______________________________
                            (Signature of Owner)

                                       _______________________________
                        (Street Address)

                                       _______________________________
                                         (City)   (State)       (Zip Code)

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                                                                       EXHIBIT B

FORM OF WARRANT SHARES REGISTRATION RIGHTS AGREEMENT

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Appendix F
 Nonqualified Stock Option Agreement

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        THIS AGREEMENT, made as of the 30th day of November, 2001,
between Marvel Enterprises, Inc., a Delaware corporation (the "Company"), and   
Isaac Perlmutter (the "Optionee"), is entered into pursuant to the Marvel       
Enterprises, Inc. 1998 Stock Incentive Plan, as amended (the "Plan").           
Capitalized terms used herein, but not defined herein, shall have the meanings  
ascribed to them in the Plan.                                                   

           WHEREAS, the Company has adopted the Plan in order to provide
additional incentive to certain directors, officers, employees and consultants  
of the Company and its Subsidiaries;                                            

               WHEREAS, the Committee responsible for administration of the Plan
has determined to grant an option to the Optionee as provided herein; and       

        WHEREAS, the Company and the Optionee are entering into an
employment agreement (the "Employment Agreement"), dated as of the date of this 
Agreement;                                                                      

  NOW, THEREFORE, the parties hereto agree as follows:

1.     Grant of Option.                                         
----------------                                  

            1.1 The Company hereby grants to the Optionee, effective as of
November 30, 2001 (the "Grant Date"), the right and option (the "Option") to    
purchase all or any part of an aggregate of 3,950,000 whole Shares subject to,  
and in accordance with, the terms and conditions set forth in this Agreement and
subject to approval by the Stockholders of an amendment of the Plan to increase 
the number of shares of Common Stock available for issuance under the Plan (the 
"Stock Plan Amendment") and of the grant of the Option.                         

             1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.                           

     1.3 This Agreement shall be construed in accordance and
consistent with, and subject to, the provisions of the Plan (the provisions of  
which are incorporated herein by reference); however, in the event of any       
conflict between the terms of this Agreement and the Plan, the terms of this    
Agreement shall govern.                                                         

2.     Purchase Price.                                          
---------------                                   

           The price at which the Optionee shall be entitled to purchase
Shares upon the exercise of the Option shall be $3.30 per Share.                

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3.     Duration of Option.                                      
-------------------                               

            Subject to Section 1.1, the Option shall be exercisable to the
extent and in the manner provided herein from and after the date of the meeting 
of Stockholders of the Company at which the Stock Plan Amendment and the Option 
are either approved or not approved by the Stockholders of the Company, until   
the sixth anniversary of the Grant Date (the "Exercise Term"); provided,        
however, that the Option may be earlier terminated as provided in Section 6     
hereof.                                                                         

4.     Exercisability of Option.                                
-------------------------                         

             The Option shall be fully vested at all times and shall entitle
the Optionee to purchase the Shares covered by this Option, in whole at any time
or in part from time to time during the period referred to in Section 3, unless 
and until the Option ceases to be exercisable as provided in this Agreement.    

5.     Manner of Exercise and Payment.                          
-------------------------------                   

               5.1 Subject to the terms and conditions of this Agreement and the
Plan, the Option may be exercised by delivery of written notice to the Company, 
in the form attached hereto as Appendix A, at its principal executive office.   
Such notice shall state that the Optionee is electing to exercise the Option and
the number of Shares in respect of which the Option is being exercised and shall
be signed by the person or persons exercising the Option. If any of the Shares  
in respect of which the Option is being exercised are required to be issued as  
shares of Restricted Stock as provided in Section 5.5 below, the notice of      
exercise must also be accompanied by a stock power, duly executed by the        
Optionee in blank. If requested by the Committee, such person or persons shall  
(i) deliver this Agreement to the Secretary of the Company who shall endorse    
thereon a notation of such exercise and (ii) provide satisfactory proof as to   
the right of such person or persons to exercise the Option.                     

              5.2 The notice of exercise described in Section 5.1 hereof shall
be accompanied by the full purchase price for the Shares in respect of which the
Option is being exercised, in cash.                                             

         5.3 Upon receipt by the Company of notice of exercise, full
payment for the Shares in respect of which the Option is being exercised and a  
stock power, if required by Section 5.1, the Optionee shall immediately have    
full voting and other ownership rights with respect to the number of Shares as  
to which such exercise was effective. The Company shall enter the Optionee's    
name as a stockholder of record on the books of the Company and, subject to     
Section 17 of the Plan, promptly take such action as may be necessary to deliver
the Shares as provided in Section 5.5 below.                                    

             5.4 The Optionee shall not be deemed to be the holder of, or to
have any of the rights of a holder with respect to any Shares subject to the    
Option until the Option shall have been exercised pursuant to the terms of this 
Agreement and the                                                               

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Optionee shall have paid the full purchase price for the number of Shares in    
respect of which the Option was exercised.                                      

           5.5 Shares issued upon exercise of the Option shall be either
Unrestricted Shares or Restricted Stock as provided in this Section 5.5. If the 
Option is exercised prior to the fourth anniversary of the Grant Date, all of   
the Shares issued upon exercise of the Option shall be issued as Shares of      
Restricted Stock. If the Option is exercised, in the aggregate, for more than   
one-third of the Shares covered by the Option on or after the fourth anniversary
of the Grant Date but prior to the fifth anniversary of the Grant Date, a number
of Shares equal to the excess of (x) the number of Shares issued upon exercise  
of the Option at all times up to and including such exercise over (y) one-third 
of the Shares covered by the Option shall be issued as shares of Restricted     
Stock. If the Option is exercised, in the aggregate, for more than two-thirds of
the Shares covered by the Option on or after the fifth anniversary of the Grant 
Date but prior to the sixth anniversary of the Grant Date, a number of Shares   
equal to the excess of (x) the number of Shares issued upon exercise of the     
Option at all times up to and including such exercise over (y) two-thirds of the
Shares covered by the Option shall be issued as shares of Restricted Stock. The 
vesting restrictions on shares of Restricted Stock issued upon exercise of the  
Option shall lapse, and such Shares shall cease to be Restricted Stock, as      
provided in Section 6 of this Agreement.                                        

             5.6 Any shares of Restricted Stock will be issued upon exercise
of the Option subject to the following conditions:                              

               (i) the Company shall deliver certificates representing shares of
Restricted Stock, together with the stock power executed by the Optionee to the 
Secretary of the Company, who shall hold such certificates in escrow pursuant to
this Agreement;                                                                 

             (ii) Certificates representing shares of Restricted Stock shall
bear the following legend:                                                      

       THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REACQUISITION
BY MARVEL ENTERPRISES, INC., AND SUCH SHARES MAY NOT BE SOLD OR 
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO THE PROVISIONS OF THE  
      NONQUALIFIED STOCK OPTION AGREEMENT BY AND BETWEEN MARVEL ENTERPRISES,
INC. AND THE REGISTERED OWNER OF SUCH SHARES;                   

        (iii) any dividends on the Restricted Stock in the form of
additional Shares or other securities of the Company shall be shares of         
Restricted Stock, subject to the same terms and conditions as the Restricted    
Stock with respect to which the dividends were paid;                            

           (iv) as vesting restrictions lapse on the Restricted Stock as
provided in Section 6 of this Agreement, upon the written request of the        
Optionee, the Company shall cause the Secretary to deliver certificates         
representing such shares of Restricted Stock to the Optionee at the address     
requested by the Optionee. Such certificates shall not be                       

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delivered to the Optionee unless he has made arrangements satisfactory to the   
Company to satisfy tax-withholding obligations. Such certificates shall bear any
legends which the Company reasonably deems appropriate to assure compliance with
applicable securities laws, but shall not bear the legend required by paragraph 
(ii) above; and                                                                 

            (v) if the Optionee's service as an employee terminates before
all vesting restrictions lapse on his Restricted Stock, the Company may, at its 
election, repurchase within ninety (90) days from the date of termination all or
any portion of the shares of Restricted Stock as to which vesting restrictions  
have not lapsed. The Company may assign such right to repurchase Restricted     
Stock, in whole or in part, to a third party. Such a repurchase shall be at a   
price equal to the exercise price paid by the Optionee for such Shares and shall
be effected by delivery by the Company (or that assignee) of a certified check, 
payable to the Optionee in the full amount of the purchase price together with a
notice that the Company has exercised its right to repurchase the shares of     
Restricted Stock pursuant to this section. Such a repurchase shall be effective 
as of the time the Company gives such a notice and such payment is made, whether
or not such notice and payment have been received by the Optionee. Upon such a  
repurchase, the Secretary of the Company shall deliver such certificates to the 
Company (or that assignee) together with the stock power executed by the        
Optionee, and the Secretary of the Company shall execute and deliver any        
instruments reasonably deemed appropriate by the Company to effect that delivery
on behalf of the Optionee and transfer of ownership of such shares to the       
Company (or that assignee). The Optionee hereby irrevocably authorizes the      
Secretary of the Company to effect that delivery and to execute and deliver any 
such instruments on behalf of, and in the name of, the Optionee. Any shares of  
Restricted Stock not purchased in accordance with this Section 5.6(v) shall     
thereafter be free of all restrictions and rights of repurchase.                

        6.     Lapse of Restrictions; Termination of Employment during the Term.
               -----------------------------------------------------------------

           6.1 Termination of Employment Under the Optionee's Employment
Agreement for Good Reason or for other than Cause.                              

              (a) Except as provided in Section 6.1(b) hereof, if the Term (as
defined in the Employment Agreement) is terminated (x) by the Optionee upon the 
occurrence of an event described in Section 4.4(a) of the Employment Agreement, 
or (y) by the Company other than pursuant to Section 4.1, 4.2 or 4.3 of the     
Employment Agreement, the Option shall thereafter be exercisable until the      
expiration of the Exercise Term for a number of Shares equal to the greater of  
(i) the amount, if any, by which one-third of the Shares covered by the Option  
exceeds the number of Shares in respect of which the Option was previously      
exercised, or (ii) the amount, if any, by which (x) the product of the number of
full months elapsed from the Grant Date to the date on which the Term is        
terminated, multiplied by the number of Shares covered by the Option divided by 
72, exceeds (y) the number of Shares previously issued upon exercise of the     
Option. The Option shall cease to be exercisable after the termination of the   
Term for any Shares in excess of such number. If the number of Shares previously
issued upon exercise of the Option is equal to or less than such number, any    
remaining vesting restrictions on those Shares shall lapse and such Shares shall
cease to be Restricted Stock. Any Shares issued upon                            

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exercise of the Option to the extent it remains exerciseable thereafter shall be
fully vested and shall not be Restricted Shares.                                

             (b) If the Term is terminated pursuant to Section 4.1 or 4.2 of
the Employment Agreement, the Option shall thereafter be exercisable until the  
expiration of the Exercise Term for a number of Shares equal to the amount, if  
any, by which, (i) the product of the number of full months elapsed from the    
Grant Date to the date on which the Term is terminated multiplied by the number 
of Shares covered by the Option divided by 72, exceeds (ii) the number of Shares
previously issued upon exercise of the Option. The Option shall cease to be     
exercisable after the termination of the Term for any Shares in excess of such  
number. If the number of shares previously issued upon exercise of the Option is
equal to or less than such number, any remaining vesting restrictions on those  
Shares shall lapse and such Shares shall cease to be Restricted Stocks. Any     
Shares issued upon exercise of the Option to the extent it remains exerciseable 
thereafter shall be fully vested and shall not be Restricted Shares. In the     
event of termination of employment pursuant to Section 4.1 of the Employment    
Agreement, the Option shall be exercisable, to the extent provided in the Plan  
and this Agreement, by the legatee or legatees under the Optionee's will, or by 
the Optionee's personal representatives or distributees and such person or      
persons shall be substituted for the Optionee each time the Optionee is referred
to herein.                                                                      

           6.2 Termination of Employment Under the Optionee's Employment
Agreement for Cause. If the Term is terminated by the Company pursuant to       
Section 4.3 of the Employment Agreement, or by the Optionee other than pursuant 
to Section 4.4 (a) of the Employment Agreement, the Option shall thereafter     
cease to be exercisable.                                                        

            6.3 Breach of Restrictive Covenants. If the Optionee commits a
breach of any of the provisions of Sections 5.1, 5.2 or 5.3 of the Employment   
Agreement, in addition to the Company's rights and remedies set forth in Section
5.6 of the Employment Agreement or otherwise, any profit received by the        
Optionee from any exercise of the Option shall inure to and be repaid to the    
Company upon its demand. The foregoing provision may be satisfied at the        
Optionee's option by payment of cash and/or tender of shares of Common Stock    
which are not Restricted Shares. Shares of Common Stock tendered pursuant to    
this section shall be valued at the average of the daily closing sale prices (or
the equivalent in an over the counter market) for the Common Stock, on the stock
exchange or over the counter market that is the primary trading market for the  
Common Stock, for the 10 consecutive days immediately preceding the date of the 
tender.                                                                         

              6.4 Change in Control. Provided the Optionee is then employed by
the Company, in the event of a Change in Control during the Term, all           
restrictions on shares of Restricted Stock shall lapse and, to the extent not   
therefore exercised, the Option shall remain exercisable in full until the sixth
anniversary of the Grant Date. The vesting restrictions on Shares of Restricted 
Stock previously issued upon exercise of the Option shall lapse and such Shares 
shall cease to be Restricted Stock and any Shares issued upon exercise of the   
Option after the Change in Control shall be fully vested and shall not be       
Restricted Shares. A Change in Control shall be deemed to have occurred if (i)  
any                                                                             

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"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the  
Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than   
the Optionee or any of his affiliates, or any "group" of which the Optionee or  
any of his affiliates is a member (hereinafter, a "Third Party"), is or becomes 
the "beneficial owner" (as defined in Rule 13d-3 promulgated under the Exchange 
Act), directly or indirectly, of securities of the Company representing fifty   
percent (50%) or more of the combined voting power of the Company's then        
outstanding securities entitled to vote in the election of the directors of the 
Company, (ii) the Company is a party to any merger, consolidation or similar    
transaction as a result of which either (x) the Company's common stock ceases to
be listed on a national securities exchange or on NASDAQ or (y) the shareholders
of the Company immediately prior to such transaction beneficially own securities
of the surviving entity representing less than fifty percent (50%) of the       
combined voting power of the surviving entity's outstanding securities entitled 
to vote in the election of directors of the surviving entity, (iii) all or      
substantially all of the assets of the Company are acquired by a Third Party, or
(iv) a majority of the members of the Company's board of directors ceases to be 
Continuing Directors. "Continuing Directors" means individuals who are members  
of the board of directors on the date of this Agreement and individuals who have
hereafter been nominated for election to the board of directors by a majority of
the Continuing Directors serving as directors at the time of such nomination.   

              6.5 Lapse of Restrictions. Unless such restrictions on shares of
Restricted Stock issued on exercise of the Option during the Term shall have    
previously lapsed as provided in this Section 6, restrictions shall lapse on    
each anniversary of the Grant Date commencing with the fourth anniversary of the
Grant Date on a number of such shares equal to one-third of the total number    
Shares covered by the Option; provided, that, although the parties intend that  
the effect of the termination of the Optionee's employment on restrictions under
all circumstances is addressed under other sections of this Agreement, for the  
avoidance of doubt the parties acknowledge that the lapse of restrictions under 
this Section 6.5 shall occur only if the Optionee is employed by the Company on 
the applicable anniversary date referred to in this Section 6.5.                

              6.6 Fractional Shares. Any fractional number of Shares resulting
from the application of the calculations provided in this Section 6 shall be    
rounded to the next higher whole number of Shares, provided Optionee is then    
employed by the Company.                                                        

7.     Nontransferability.                                      
-------------------                               

        Neither the Option nor any shares of Restricted Stock with
respect to which the vesting restrictions have not lapsed shall be transferable 
other than by will or by the laws of descent and distribution. In the event of  
such transfer, the transferee shall acquire the Option and any shares of        
Restricted Stock subject to the restrictions set forth in this Agreement. During
the lifetime of the Optionee, the Option shall be exercisable only by the       
Optionee.                                                                       

8.     No Right to Continued Employment.                        
---------------------------------                 

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           Nothing in this Agreement or the Plan shall be interpreted or
construed to confer upon the Optionee any right with respect to continuance of  
employment by the Company, nor shall this Agreement or the Plan interfere in any
way with the right of the Company to terminate the Optionee's employment at any 
time.                                                                           

9.     Adjustments.                                             
------------                                      

           In the event of a Change in Capitalization, the Committee may
make appropriate adjustments to the number and class of Shares or other stock or
securities subject to the Option and the purchase price for such Shares or other
stock or securities. The Committee's adjustment shall be made in accordance with
the provisions of Section 10 of the Plan and shall be effective and final,      
binding and conclusive for all purposes of the Plan and this Agreement.         

10.    Certain Transactions.                                    
---------------------                             

              Upon the effective date of (i) the liquidation or dissolution of
the Company or (ii) a merger or consolidation of the Company (a "Transaction"), 
the Option shall continue in effect in accordance with its terms and the        
Optionee shall be entitled to receive in respect of all Shares subject to the   
Option, upon exercise of the Option, the same number and kind of stock,         
securities, cash, property or other consideration that each holder of Shares was
entitled to receive in the Transaction.                                         

11.    Withholding of Taxes.                                    
---------------------                             

              The Company shall have the right to deduct from any distribution
of cash to the Optionee an amount equal to the federal, state and local income  
taxes and other amounts as may be required by law to be withheld (the           
"Withholding Taxes") with respect to the Option. If the Optionee is entitled to 
receive Shares upon exercise of the Option, the Optionee shall pay the          
Withholding Taxes to the Company in cash prior to the issuance of such Shares.  
In satisfaction of the Withholding Taxes, the Optionee may make a written       
election (the "Tax Election"), which may be accepted or rejected in the         
discretion of the Committee, to have withheld a portion of the Unrestricted     
Shares, if any, issuable to him upon exercise of the Option, having an aggregate
Fair Market Value, on the date preceding the date of such issuance, equal to the
Withholding Taxes.                                                              

12.    Receipt of Plan Summary.                                 
------------------------                          

          The Optionee hereby acknowledges receipt of a summary of the
Plan.                                                                           

13.    Modification of Agreement.                               
--------------------------                        

               This Agreement may be modified, amended, suspended or terminated,
and any terms or conditions may be waived, but only by a written instrument     
executed by the parties hereto.                                                 

14.    Severability.                                            
-------------                                     

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          Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the       
remaining provisions of this Agreement shall not be affected by such holding and
shall continue in full force in accordance with their terms.                    

15.    Governing Law.                                           
--------------                                    

           The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of New York without   
giving effect to the conflicts of laws principles thereof.                      

16.    Successors in Interest.                                  
-----------------------                           

              This Agreement shall inure to the benefit of and be binding upon
any successor to the Company. This Agreement shall inure to the benefit of the  
Optionee's legal representatives. All obligations imposed upon the Optionee and 
all rights granted to the Company under this Agreement shall be final, binding  
and conclusive upon the Optionee's heirs, executors, administrators and         
successors.                                                                     

17.    Resolution of Disputes.                                  
-----------------------                           

               Any dispute or disagreement which may arise under, or as a result
of, or in any way relate to, the interpretation, construction or application of 
this Agreement shall be determined by the Committee. Any determination made     
hereunder shall be final, binding and conclusive on the Optionee and Company for
all purposes.                                                                   

(Signature Page Follows)

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             IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.                                                

                COMPANY:

                                MARVEL ENTERPRISES, INC.

           By:
                                               ---------------------------------
                   Name:
                    Title:

                 OPTIONEE:

                            /s/ Isaac Perlmutter
                                         ---------------------------------
                        Isaac Perlmutter

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                                                                      Appendix A

NOTICE OF EXERCISE OF OPTION
 UNDER THE
MARVEL ENTERPRISES, INC. 1998 STOCK INCENTIVE PLAN

Marvel Enterprises, Inc.                                                        
685 Third Avenue                                                                
New York, NY 10017                                                              
Attn: Corporate Secretary                                                       

Gentlemen:                                                                      

            I hereby exercise my option to purchase common stock of Marvel
Enterprises, Inc. (the "Company"), par value $.01 per share (the "Common        
Stock"), under the terms and conditions of that certain Nonqualified Stock      
Option Agreement, dated as of November 30, 2001, by and between Isaac Perlmutter
and the Company, as follows:                                                    

         (1) Number of shares: _____________________________________
         (2) Option Price per share: $______________________________
         (3) Aggregate purchase price [(1) X (2)]: $________________

Date:_________________________                  __________________________      
                           (Signature)

App. A-1

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Appendix G
 Audit Committee Charter

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Marvel Enterprises, Inc.
Audit Committee Charter 
 Approved by the Board of Directors 12/16/99
 -------------------------------------------

Organization                                                                    
------------                                                                    

In accordance  with Section  3.2(b) of the By-Laws of Marvel  Enterprises,  Inc.
(the "Company"), the Board of Directors established an Audit Committee comprised
of five  directors.  Members of the Audit  Committee  shall be directors who are
independent  of the  management of the Company and are free of any  relationship
that,  in the  opinion of the Board of  Directors,  would  interfere  with their
exercise of independent judgment as a committee member.                         

Statement of Policy                                                             
-------------------                                                             

The Audit  Committee  shall  provide  assistance  to the directors in fulfilling
their responsibility to the shareholders,  potential shareholders and investment
community relating to corporate accounting,  reporting practices of the Company,
and the quality and  integrity of the  financial  reports of the Company.  In so
doing, it is the responsibility of the Audit Committee to maintain free and open
means  of  communications  between  the  directors,  the  independent  auditors,
persons, if any, performing an internal audit function (the "internal auditors")
and the financial management of the Company. The Company's  independent auditors
will  report  through  management  to the  Audit  Committee  and  be  ultimately
accountable to the Board of Directors and Audit Committee.                      

Responsibilities                                                                
----------------                                                                

In carrying out its responsibilities,  the Audit Committee believes its policies
and  procedures  should  remain  flexible,  in order to best  react to  changing
conditions  and to ensure to the directors and  shareholders  that the corporate
accounting  and reporting  practices of the Company are in  accordance  with all
requirements and are of the highest quality.                                    

In carrying out these responsibilities, the Audit Committee will:               

       o  Review,   evaluate  and  recommend  to  the  Board  of  Directors  the
       independent  auditors to be selected to audit the financial statements of
       the Company and its divisions and  subsidiaries  and, where  appropriate,
       recommend to the Board of Directors the  replacement  of the  independent
       auditors  (or to  nominate  the  independent  auditors  to be proposed to
shareholder approval in any proxy statement).                     

       o Meet with the  independent  auditors and  financial  management  of the

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       Company to review the scope of the  proposed  audit for the current  year
       and the audit  procedures to be utilized,  and at the conclusion  thereof
       review such audit,  including  any  comments  or  recommendations  of the
independent auditors.                                             

       o Require that the independent  auditors submit to the Audit Committee on
       a periodic basis a formal written statement delineating all relationships
       between the  independent  auditors and the Company;  actively engage in a
       dialogue  with the  independent  auditors  with respect to any  disclosed
       relationships   or  services   that  may  impact  the   objectivity   and
       independence of the independent auditors and recommend appropriate action
       to be taken by the Board of Directors  in response to such  relationships
  and services to ensure the independence of the independent auditors.

       o Review with the independent  auditors,  the internal  auditors (if any)
       and  financial   management,   the  adequacy  and  effectiveness  of  the
       accounting  and  financial  controls  of  the  Company,  and  elicit  any
       recommendations  for the improvement of such internal control  procedures
       or particular areas where new or more detailed controls or procedures are
       desirable.  Particular  emphasis  should be given to the adequacy of such
       internal  controls to expose any  payments,  transactions,  or procedures
that might be deemed illegal or otherwise improper.               

       o Periodically  review the viability of and/or need for an internal audit
function at the Company.                                          

       o Review annually with financial management and the Company's independent
       auditors,  the  Company's  accounting  policies in light of the Company's
       current operations and current generally accepted  accounting  principles
and SEC rules and regulations.                                    

       o Review the financial statements to be contained in the annual report on
       Form  10-K  and  annual  shareholders  report  with  management  and  the
       independent  auditors to  determine  that the  independent  auditors  are
    satisfied with the content and disclosure of the financial statements.

       o Provide  sufficient  opportunity for independent  auditors to meet with
       the members of the Audit Committee without members of management present.
       Among the items to be  discussed in these  meetings  are the  independent
       auditors' evaluation of the Company's financial,  accounting and auditing
       personnel,  and the cooperation  that the independent  auditors  received
during the course of the audit.                                   

       o Review accounting and financial human resources and succession planning
within the Corporation.                                           

2                                                                               

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       o  Provide a report  of the  matters  discussed  at each  Audit Committee
meeting to the Board of Directors.                                

       o Investigate any matter brought to its attention within the scope of its
       duties,  with the power to retain outside counsel for this purpose if, in
its judgement, that is appropriate.                               

3                                                                               

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MARVEL ENTERPRISES, INC.

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF
MARVEL ENTERPRISES, INC. FOR AN ANNUAL MEETING OF STOCKHOLDERS
 TO BE HELD ON JANUARY __, 2002.

     The  undersigned,  as a holder of either common  stock,  par value $.01 per
share ("Common Stock"), of Marvel Enterprises, Inc., a Delaware corporation (the
"Company"), or 8% cumulative convertible exchangeable preferred stock, par value
$.01 per share ("8% Preferred Stock"), of the Company,  hereby appoints Allen S.
Lipson and  William  Jemas,  Jr.  with full power of  substitution,  to vote all
shares of Common Stock and 8% Preferred  Stock that the  undersigned is entitled
to vote through the execution of a proxy with respect to the 2001 Annual Meeting
of Stockholders of the Company (the "Annual Meeting") to be held at ___________,
local time, on  ________________,  2001 at the  __________________________,  New
York,  New York,  or any and all  adjournments  or  postponements  thereof,  and
authorizes  and  instructs  said  proxies to vote in the manner  directed on the
reverse side.                                                                   

     You may revoke  this  proxy at any time  before it is voted by (i) filing a
revocation  with the Secretary of the Company;  (ii)  submitting a duly executed
proxy  bearing a later  date or time  than the date or time of the  proxy  being
revoked; or (iii) attending the Annual Meeting and voting in person.            

     A stockholder's  attendance at the Annual Meeting will not by itself revoke
a proxy given by the stockholder.                                               

     Returned  proxy cards will be voted (1) as specified on the matters  listed
on the reverse  side;  (2) FOR approval of each of the  proposals  listed on the
reverse side if no  instructions to the contrary are made; and (3) in accordance
with the judgment of the persons  named as proxies on any other matters that may
properly come before the Annual Meeting.                                        

     Print and sign your name on the reverse side exactly as it appears  thereon
and date this card. When signing as attorney, executor,  administrator,  trustee
or guardian, please give full title as such. Joint owners should each sign. If a
corporation,  please sign in full  corporate  name by  president  or  authorized
officer. If a partnership, please sign in partnership name by authorized person.

(Continued and to be signed on reverse side)

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                                                        [Enlarge/Download Table]


|X|              Please mark your                                                                                                
                 votes as indicated in                                                                                           
                 this example.                                                                                                   

The Board of Directors recommends that you vote "FOR" all the nominees listed under Item No. 6 and "FOR" Item Nos. 1             
through 5 and Item No. 7.                                                                                                        

6.  Election of Directors.         FOR         WITHHOLD AUTHORITY                                                                
                               all nominees     for all nominees                                                                 
                                                                    Nominees:  Morton E. Handel,  Avi Arad,  F. Peter Cuneo,  Sid
                                   |_|               |_|            Ganis,  Shelley  F.  Greenhaus,  James  F.  Halpin,  Lawrence
                                                                    Mittman, Isaac Perlmutter, and Michael J. Petrick.           

For, except vote withheld for the following nominees:                                                                            

--------------------------------------------------------                                                                         
                                                                                                                                 
1.  On the proposal to           FOR        AGAINST      ABSTAIN    4.  On the proposal to       FOR        AGAINST     ABSTAIN  
    approve the amendment                                               approve the                                              
    to the certificate of                                               amendment to the                                         
    incorporation of the                                                certificate of                                           
    Company to establish a                                              incorporation of                                         
    classified board of                                                 the Company to                                           
    directors having three                                              eliminate the                                            
    classes with staggered                                              ability of                                               
    three-year terms.                                                   stockholders of the                                      
                                                                        Company to call                                          
                                                                        special meetings of                                      
                                                                        the stockholders.                                        
                                 |_|          |_|         |_|                                     |_|         |_|         |_|    

2.  On the proposal to           FOR        AGAINST      ABSTAIN    5.  On the proposal to       FOR        AGAINST     ABSTAIN  
    approve the amendment                                               adopt an amendment                                       
    to the certificate of                                               to increase the                                          
    incorporation of the                                                number of shares of                                      
    Company to provide that                                             Common Stock                                             
    any vacancy on the                                                  issuable pursuant                                        
    Board of Directors be                                               to awards made                                           
    filled only by a vote                                               under the Company's                                      
    of the majority of                                                  1998 Stock                                               
    directors then in                                                   Incentive Plan.                                          
    office.                                                                                                                      
                                 |_|          |_|         |_|                                     |_|         |_|         |_|    

3.  On the proposal to           FOR        AGAINST      ABSTAIN    7.  On the proposal to       FOR        AGAINST     ABSTAIN  
    approve the amendment                                               ratify the                                               
    to the certificate of                                               appointment of                                           
    incorporation of the                                                Ernst & Young LLP                                        
    Company to eliminate                                                as the Company's                                         
    the ability of                                                      independent                                              
    stockholders to take                                                accountants for the                                      
    action by written                                                   fiscal year ending                                       
    consent without a                                                   December 31, 2001.                                       
    meeting.                                                                                                                     
                                 |_|          |_|         |_|                                     |_|         |_|         |_|    

Signature(s):__________________________ Date:___________________ Signature(s):________________________ Date:___________________  

----------                                                                                                                       
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE TODAY.                                       

Dates Referenced Herein   and   Documents Incorporated by Reference

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		10/1/98		36		57			3,  8-K
		11/19/97		40
		2/23/95		49
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