Exhibit 10.7

 

 

EXECUTION COPY

 

AMBAC Assurance Corporation

One State Street Plaza

New York, New York 10004

Attention: Consumer Asset Backed Securities

Facsimile: 212-363-1459

Confirmation: 212-668-0340

 

The Lenders from time to time party to the Credit Agreement

 

and with respect to Section 2 herein

 

MVL Film Finance LLC

9242 Beverly Boulevard, Suite 350

Beverly Hills, California 90210

 

 

 

August 31, 2005

 

MVL Film Finance LLC

 

Reference is made to the Credit and Security Agreement, dated as of August 31,
2005 among MVL Film Finance LLC, as Borrower (“MVL”), the financial institutions
and conduit lenders party thereto, General Electric Capital Corporation, as
Administrative Agent, and HSBC Bank USA, National Association, as Collateral
Agent (the “Credit Agreement”). Capitalized terms that are not otherwise defined
herein (this “MEI Covenant Letter”) shall have the meanings given such terms in
the Credit Agreement or in the Master Agreement.

 

In consideration of the benefit to be received by Marvel Enterprises, Inc.
(“MEI”) and its Affiliates under the Credit Agreement and the other Transaction
Documents, the sufficiency of which is hereby acknowledged, MEI hereby agrees,
for the benefit of the Secured Parties, as follows:

 

1.            MEI agrees that it shall take (or refrain from taking, as the case
may be) such actions, except as contemplated by the Transaction Documents and
Completion Bonds, as shall be reasonably necessary in order that:

 

(i) neither MEI nor any of its controlled (as defined in the Master Agreement)
Affiliates other than MVL (each a “Controlled Affiliate” and, in the aggregate,
the “Controlled Affiliates”) commingle any of its money or other assets with any
money or assets of MVL or MVL Rights LLC (“MRI”);

 

(ii) each of MEI and its Controlled Affiliates maintain corporate records and
books of account and minutes of the meetings and the other proceedings of MEI or

 

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MEI’s Controlled Affiliates, as the case may be, and its directors, in each
case, in such a manner so that it will not be difficult or costly to segregate,
ascertain or otherwise identify the assets and liabilities of MEI and its
Controlled Affiliates separate and distinct from the assets and liabilities of
MVL and MRI;

 

(iii) each of MEI and its Controlled Affiliates’ principal executive and
administrative offices through which its business is conducted shall be separate
and distinct from the principal executive and administrative office of MVL and
MRI. The foregoing limitation shall not be interpreted as preventing MEI or any
of its Controlled Affiliate from locating its principal executive and
administrative offices through which its business is conducted within shared
office space with MVL and/or MRI provided that such space shall be conspicuously
identified as the office of MVL and/or MRI, as applicable, so that it can be
easily located by outsiders;

 

(iv) each of MEI and its Controlled Affiliates allocate in a reasonably
proportionate manner any overhead for shared office space with MVL or MRI,
including payment for shared office space and the services performed by any
employee of MVL or MRI, as applicable;

 

(v) each of MEI and its Controlled Affiliates maintain its books and records in
such a manner so that it will not be difficult or costly to segregate, ascertain
or otherwise identify its assets and liabilities separate and distinct from the
assets and liabilities of MVL and MRI;

 

(vi) each of MEI and its Controlled Affiliates each conduct its own business and
affairs in its own name, act solely in its own name and through its own
authorized officers and agents, as an entity separate and distinct from MVL and
MRI. None of MEI nor any of MEI’s Controlled Affiliates will be appointed as
agents of MVL or MRI, provided that the foregoing limitation shall not be
interpreted as preventing any officer or employee of any MEI or any of its
Controlled Affiliates from serving as an officer or providing other services to
MVL and/or MRI, so long as such services are provided on an “arms-length” basis;

 

(vii) (a) MCI, MPROD and Marvel Studios maintain a separate balance sheet
showing its assets and liabilities and statements of income apart from those of
MVL and MRI; (b) MEI maintain financial statements that comply with generally
accepted accounting principles, showing its assets and liabilities separate and
apart from those of MVL and MRI; (c) any financial statements of any other
Controlled Affiliate of MEI show such Controlled Affiliates’ assets and
liabilities and statements of income apart from those of MVL and MRI and (d)
neither MVL’s nor MRI’s assets shall be listed on any financial statement of MEI
or of any of its Controlled Affiliates; provided, however, that MVL’s and/or
MRI’s assets may be included in a consolidated financial statement of MEI or any
of its Controlled Affiliates provided that (1) appropriate notation shall be
made on such consolidated financial statements to indicate the separateness of
MVL and/or MRI, as applicable, from MEI or its Controlled Affiliate, as the case
may be, and to indicate that MVL’s and/or MRI’s, as applicable, assets and
credit are not available to

 

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satisfy the debts and other obligations of MEI or its Controlled Affiliate, as
the case may be and (2) such assets shall also be listed on MVL’s or MRI’s, as
applicable, own separate balance sheet;

 

(viii) none of MEI and its Controlled Affiliates pay the liabilities of MVL or
MRI out of its funds other than for value, providing that the foregoing
limitation shall not be interpreted as preventing MEI or its Controlled
Affiliates from entering into cost-sharing arrangements with MVL and/or MRI
which allocate such costs in a reasonably proportionate manner or with respect
to income taxes, in a manner that is consistent with MVL’s and/or MRI’s, as
applicable, status as a “single-member entity” as defined in Treasury Regulation
§ 301-7701-3(b)(1)(ii);

 

(ix) other than capital contributions and distributions, MEI and its Controlled
Affiliates not enter into any transaction with MVL or MRI except on commercially
reasonable terms similar to those of an “arm’s length” transaction other than as
contemplated by the Transaction Documents;

 

(x) none of MEI and its Controlled Affiliates guarantee or become obligated for
the debts of MVL or MRI or hold out its credit or assets as being available to
satisfy the obligations of MVL or MRI other than as contemplated by the
Transaction Documents, providing that the foregoing limitation shall not be
interpreted as preventing MEI or its Controlled Affiliates from entering into
cost-sharing arrangements with MVL and/or MRI which allocate such costs in a
reasonably proportionate manner or with respect to income taxes, in a manner
that is consistent with MVL’s and/or MRI’s, as applicable, status as a
“single-member entity” as defined in Treasury Regulation § 301-7701-3(b)(1)(ii);

 

(xi) MEI and its Controlled Affiliates use stationery, invoices, checks and
telephone numbers through which all business correspondence and communications
are conducted separate from that of MVL and MRI as reasonably determined by MEI
and its Controlled Affiliates;

 

(xii) none of MEI and its Controlled Affiliates accept a pledge of the assets of
MVL or MRI except as contemplated by the Transaction Documents to which it is a
party;

 

(xiii) each of MEI and its Controlled Affiliates at all times hold itself out to
the public as a legal entity separate from each of MVL and MRI;

 

(xiv) each of MEI and its Controlled Affiliates not engage, directly or
indirectly, in any business or purposes with MVL or MRI other than the actions
contemplated by the Transaction Documents (which shall include those activities
taken in furtherance of the production and distribution of Motion Pictures);

 

(xv) none of MEI and its Controlled Affiliates engage in any merger,
consolidation or combination transaction with MVL or MRI;

 

 

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(xvi) none of MEI and its Controlled Affiliates maintain MVL’s or MRI’s bank
accounts in the name of MEI or its Controlled Affiliates, as the case may be,
except as contemplated by the Transaction Documents;

 

(xvii) in the event that MVL or MRI is included within a consolidated tax return
of MEI or its Controlled Affiliates, the existence of MVL or MRI, as applicable,
and the ownership of the assets of MVL or MRI, as applicable, shall be disclosed
in such consolidated tax return;

 

(xviii) none of MEI and its Controlled Affiliates sell its obligations or
securities to MVL or MRI;

 

(xix) each of MEI and its Controlled Affiliates correct any known
misunderstanding regarding MVL’s and MRI’s separate identity from MEI or its
Controlled Affiliates and not identify MVL or MRI as a division of MEI or a
Controlled Affiliate;

 

(xx) each of MEI and its Controlled Affiliates cause its directors, agents and
other representatives to act at all times with respect to MVL and MRI in
accordance with the Constitutive Documents of MEI or its Controlled Affiliates,
as the case may be, and in a manner that is consistent with this letter; and

 

(xxi)     the business decisions of the stockholders or members, as applicable,
of MEI or its Controlled Affiliates or the board of directors or managers, as
applicable, of MEI or its Controlled Affiliates shall not bind MVL or MRI unless
such business decisions have been approved in accordance with the governance
procedures set forth in the Constitutive Documents of MVL or MRI, respectively.

2.            MEI agrees on behalf of itself, MCI and Marvel Studios that, with
respect to the production of a Motion Picture for which (a) the Initial Funding
is made after the occurrence of an Event of Default and after the foreclosure on
the Collateral pursuant to and in accordance with the procedures therefor set
forth in the Credit Agreement and under applicable law, and (b) MPROD does not
remain the Development Company, MCI hereby agrees to license, on a non-exclusive
basis to the party controlling the Rights to the extent held and solely in order
to allow the exercise of the Rights by such party, the Source Material relating
specifically to the Main Character and/or Subsidiary Characters included in the
Literary Material. The license fee payable to MCI for such Source Material shall
be as follows: (x) if such Source Material is not primarily an “origin story”
(i.e., the story of how the character became such character), an amount to be
negotiated in good faith but in no event less than the then existing minimum
amount set forth in the WGAMBA for the purchase of an original story (as defined
in Article 1.B.b.5 of the WGAMBA) for a high budget motion picture (the “Minimum
Amount”); or (y) if such Source Material is primarily an “origin story,” then:
(1) if no Literary Material was developed by or for Marvel Studios or MPROD
based in whole or in part on such Source Material prior to the occurrence of (a)
above, the Minimum Amount plus any actual out-of-pocket costs and expenses paid
to any unaffiliated third party or incurred by Marvel Studios, MPROD or MCI in
connection with such Source Material, or (2) if Literary Material was

 

 

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developed by or for Marvel Studios or MPROD prior to the occurrence of the
events specified in clauses (a) and (b) above, and such Literary Material was
based in whole or in part on such Source Material, then the license fee shall be
included in the purchase price paid in connection with an exercise of the
related Literary Material Option.

3.            MCI covenants and agrees that in the event it or any of its
Affiliates intends to produce a live action or animated feature length
theatrical motion picture, the screenplay for which is based on one or more
Unencumbered Characters (as defined below) (an “Unencumbered Character
Project”), it shall provide twenty one (21) days’ written notice thereof to the
Control Party. At the election of the Control Party, during such twenty one (21)
day period MCI shall make its management reasonably available to meet with the
Control Party to discuss the possibility of pursuing the contemplated
Unencumbered Character Project through or pursuant to the Credit Agreement with
the final decision with respect thereto being that of MCI in its sole
discretion. Upon the expiration of such twenty one (21) day period, MCI or such
Affiliate may, in its sole and absolute discretion, proceed (or choose not to
proceed) with such Unencumbered Character Project. Nothing contained herein
shall be construed to impose upon MCI or any of its Affiliates any obligation or
duty to pursue the Unencumbered Character Project through or with the Control
Party or the Lenders pursuant to the Credit Agreement or otherwise.
“Unencumbered Characters” means those Marvel characters that are not subject to
Encumbrances (as defined in the MCI Assignment Agreement) as of the date hereof
or, with respect to those Marvel characters that are subject to Encumbrances as
of the date hereof, for which such Encumbrances lapse.

 

4.            Each of: (i) MEI, with respect to this MEI Covenant Letter and the
MEI Services Letter; (ii) MPROD, with respect to Sections 1, 5, 6, 15, 18 and 19
(with respect to the non-bracketed portion only) (or any successor sections
thereto) to each Production Services Agreement; (iii) MRI, with respect to
Sections 5 and 6 of the Assignment Agreement; (iv) the Borrower, with respect to
Sections 1, 3, 6, 7, 9, 14, 17, 18, 20, 21 and 24 of the MVL License Agreement;
(v) MVL and MPROD, with respect to the Viacom Guaranty; (vi) MCI, solely with
respect to the Constitutive Documents of MRI, MRI, solely with respect to the
Constitutive Documents of the Borrower, and Marvel Studios, solely with respect
to the Constitutive Documents of MPROD; and (vii) Borrower, with respect to each
Interest Rate Hedge; agree, on behalf of themselves with respect to the
applicable document or provision specified above, not to materially amend,
modify or waive any of the terms or conditions of any such document or
provision, as applicable, without the prior consent of the Control Party, which
consent shall not be unreasonably withheld or delayed, unless such amendment,
modification or waiver shall be adverse to the rights of the Secured Parties.

 

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IN WITNESS WHEREOF, Marvel Enterprises Inc. has caused this letter to be
executed by its duly authorized officer, as of the date first written above.

 

 

MARVEL ENTERPRISES INC.

 

 

 

 

By: /s/ John Turitzin

 

 

Name: John Turitzin

 

 

Title: Executive Vice President

 

ACKNOWLEDGED AND AGREED AS

OF THE DATE SET FORTH ABOVE:

 

MARVEL STUDIOS, INC.

 

By: /s/ John Turitzin

Name: John Turitzin

Title: Executive Vice President

 

MARVEL CHARACTERS, INC.

 

By: /s/ John Turitzin

Name: John Turitzin

Title: President

 

MVL RIGHTS LLC

 

By: /s/ John Turitzin

Name: John Turitzin

Title: Executive Vice President

 

MVL PRODUCTIONS LLC

 

By: /s/ John Turitzin

Name: John Turitzin

Title: Executive Vice President

 

 

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