-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Va2Rbs3ZVR9iA8AY0n3HNog6fGgmeTIMBcCsxJpR12RJHqDcRn8emFSL8fmMienQ cLF5OdyeJ3gHQEoKLTEyIg== 0001116679-05-002681.txt : 20051109 0001116679-05-002681.hdr.sgml : 20051109 20051109144510 ACCESSION NUMBER: 0001116679-05-002681 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051109 DATE AS OF CHANGE: 20051109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Marvel Entertainment, Inc. CENTRAL INDEX KEY: 0000933730 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 133711775 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13638 FILM NUMBER: 051189428 BUSINESS ADDRESS: STREET 1: 417 5TH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 BUSINESS PHONE: 2125768530 MAIL ADDRESS: STREET 1: 417 5TH AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FORMER COMPANY: FORMER CONFORMED NAME: MARVEL ENTERPRISES INC DATE OF NAME CHANGE: 19981005 FORMER COMPANY: FORMER CONFORMED NAME: TOY BIZ INC DATE OF NAME CHANGE: 19941213 10-Q 1 m10q.txt SEPTEMBER 30, 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-13638 MARVEL ENTERTAINMENT, INC. ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3711775 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 417 Fifth Avenue, New York, NY 10016 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (212)-576-4000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [X] No [_] At November 8, 2005, the number of outstanding shares of the registrant's common stock, par value $.01 per share, was 97,146,813. TABLE OF CONTENTS
Page PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited)....... 1 Condensed Consolidated Balance Sheets as of September 30, 2005 and December 31, 2004................................ 2 Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2005 and 2004............................. 3 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004............. 4 Notes to Condensed Consolidated Financial Statements.......... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 14 Results of Operations......................................... 20 Liquidity and Capital Resources............................... 26 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................................................... 27 Item 4. Controls and Procedures....................................... 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...................................................... 29 Purchases of Equity Securities by the Issuer and Affiliated Purchasers......................................... 29 Item 6. Exhibits...................................................... 30 SIGNATURES .............................................................. 30
(i) PART I. FINANCIAL INFORMATION ----------------------------- Item 1. Condensed Consolidated Financial Statements (Unaudited) 1 MARVEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (unaudited)
September 30, December 31, 2005 2004 -------------- -------------- ASSETS Current assets: Cash and cash equivalents...................................................... $ 18,097 $ 50,071 Short-term investments......................................................... 54,574 154,719 Accounts receivable, net....................................................... 63,803 73,576 Inventories, net .............................................................. 9,086 6,587 Income tax receivable.......................................................... 15,300 -- Deferred income taxes, net..................................................... 7,981 7,981 Prepaid expenses and other current assets...................................... 4,098 2,734 -------------- -------------- Total current assets..................................................... 172,939 295,668 Molds, tools and equipment, net.................................................. 5,417 5,553 Product and package design costs, net ........................................... 1,039 1,249 Goodwill......................................................................... 341,708 341,708 Accounts receivable, non-current portion......................................... 25,199 37,718 Deferred income taxes, net ..................................................... 32,823 32,583 Deferred financing costs......................................................... 25,302 Advances to joint venture partner................................................ 2,702 -- Other assets..................................................................... 309 335 -------------- -------------- Total assets............................................................. $607,438 $714,814 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................................... $ 4,406 $ 6,006 Accrued royalties.............................................................. 63,239 57,879 Accrued expenses and other current liabilities................................. 38,538 43,962 Minority interest to be distributed............................................ -- 8,428 Income taxes payable........................................................... -- 10,129 Deferred revenue .............................................................. 8,525 27,033 -------------- -------------- Total current liabilities................................................ 114,708 153,437 Accrued rent.................................................................... 950 165 Deferred revenue, non-current portion........................................... 19,921 14,712 Film slate facility obligation................................................... 24,800 -- -------------- -------------- Total liabilities........................................................ 160,379 168,314 -------------- -------------- Stockholders' equity: Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued....... -- -- Common stock, $.01 par value, 250,000,000 shares authorized, 121,740,632 issued and 97,128,222 outstanding in 2005 and 120,442,988 issued and 105,101,788 outstanding in 2004............................................................ 1,217 1,205 Deferred stock compensation...................................................... (6,839) (5,164) Additional paid-in capital....................................................... 594,180 577,169 Retained earnings................................................................ 143,843 66,943 Accumulated other comprehensive loss............................................. (2,455) (2,652) Treasury stock, 24,611,810 shares in 2005 and 15,341,200 shares in 2004.......... (282,887) (91,001) -------------- -------------- Total stockholders' equity............................................... 447,059 546,500 -------------- -------------- Total liabilities and stockholders' equity............................... $607,438 $714,814 ============== ==============
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 2 MARVEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (In thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ----------------------- 2005 2004 2005 2004 ------------ ----------- ----------- ----------- Net sales............................................ $ 81,128 $ 135,183 $ 273,412 $ 412,976 ------------ ----------- ----------- ----------- Costs and expenses: Cost of revenues (excluding depreciation expense). 14,105 38,318 37,545 141,701 Selling, general and administrative............... 30,686 34,940 107,597 97,087 Depreciation and amortization..................... 1,232 1,350 3,375 2,906 ------------ ----------- ----------- ----------- Total costs and expenses............................. 46,023 74,608 148,517 241,694 Equity in net income of joint venture................ -- -- -- 8,117 Other income, net.................................... 245 1,570 1,493 3,659 ------------ ----------- ----------- ----------- Operating income..................................... 35,350 62,145 126,388 183,058 Interest income (expense), net....................... (399) 550 2,173 (18,343) ------------ ----------- ----------- ----------- Income before income taxes and minority interest..... 34,951 62,695 128,561 164,715 Income tax expense................................... 11,158 21,476 47,121 59,267 Minority interest in consolidated joint venture...... 401 6,867 4,540 10,695 ------------ ----------- ----------- ----------- Net income........................................... $ 23,392 $ 34,352 $ 76,900 $ 94,753 ============ =========== =========== =========== Basic earnings per share attributable to common stock $ 0.24 $ 0.32 $ 0.76 $ 0.88 ============ =========== =========== =========== Weighted average number of basic shares outstanding.. 96,647 107,130 101,273 108,022 ============ =========== =========== =========== Diluted earnings per share attributable to common stock................................................ $ 0.23 $ 0.30 $ 0.71 $ 0.83 ============ =========== =========== =========== Weighted average number of diluted shares outstanding 103,174 113,464 107,918 114,685 ============ =========== =========== =========== Comprehensive income: Net income........................................ $ 23,392 $ 34,352 $ 76,900 $ 94,753 Other comprehensive loss.......................... (66) (43) (197) (129) ------------ ----------- ----------- ----------- Comprehensive income.............................. $ 23,326 $ 34,309 $ 76,703 $ 94,624 ============ =========== =========== ===========
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 3 MARVEL ENTERTAINMENT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
Nine Months Ended September 30, 2005 2004 ---- ---- Cash flows from operating activities: Net income............................................................ $ 76,900 $ 94,753 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization....................................... 3,375 2,906 Provision for doubtful accounts..................................... -- 2,806 Amortization of deferred financing costs............................ 477 3,446 Non-cash charge for stock-based compensation........................ 3,234 3,355 Tax benefit of stock option exercise................................ 6,186 2,417 Gain from sale of fixed assets...................................... -- (754) Deferred income taxes............................................... (240) 20,829 Minority interest in net income of joint venture (net of distributions of $15,671 and $4,782, respectively)................................ (11,130) 5,913 Equity in net income from joint venture............................. -- (8,117) Changes in operating assets and liabilities: Accounts receivable................................................. 22,292 (35,185) Inventories......................................................... (2,499) 2,753 Income tax receivable............................................... (15,300) -- Distributions received from joint venture........................... -- 3,321 Prepaid expenses and other current assets........................... (1,364) 1,742 Other assets........................................................ (67) (110) Deferred revenue ................................................... (13,299) (8,772) Income taxes payable................................................ (10,129) 14,333 Accounts payable, accrued expenses and other current liabilities.... (1,153) 16,843 ------------- ------------- Net cash provided by operating activities................................. 57,283 122,479 ------------- ------------- Cash flows from investing activities: Cash of consolidated joint venture.................................... -- 8,376 Payment of administrative claims and unsecured claims, net............ (50) (2,675) Purchases of molds, tools and equipment............................... (2,214) (1,746) Proceeds from sale of fixed assets -- 1,210 Expenditures for product and package design........................... (722) (810) Sales of short-term investments...................................... 320,022 100 Purchases of short-term investments................................... (219,877) (60,869) Net sales of certificates of deposit.................................. -- 169,457 ------------- ------------- Net cash provided by investing activities 97,159 113,043 ------------- ------------- Cash flows from financing activities: Payment of Senior Note................................................ -- (150,962) Proceeds from debt facility........................................... 24,800 -- Deferred financing costs.............................................. (24,714) -- Purchase of treasury stock............................................ (191,886) (43,602) Exercise of stock options............................................. 5,384 1,373 ------------- ------------- Net cash used in financing activities.......................... (186,416) (193,191) ------------- ------------- Net (decrease) increase in cash and cash equivalents...................... (31,974) 42,331 Cash and cash equivalents, at beginning of period......................... 50,071 32,562 ------------- ------------- Cash and cash equivalents, at end of period............................... $ 18,097 $ 74,893 ============= ============= Supplemental disclosures of cash flow information: Interest paid during the period....................................... $ -- $ 18,115 Income taxes paid during the period................................... $ 67,330 $ 21,667 Supplemental disclosure of non-cash financing activities: Commom stock warrants issued in settlement of deferred financing costs....................................................... $ 1,065 $ --
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 4 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 (unaudited) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited Condensed Consolidated Financial Statements of Marvel Entertainment, Inc. and its subsidiaries (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of financial position, results of operations and cash flows of the Company for the periods presented have been included. The unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three and nine-month periods ended September 30, 2005 and the unaudited Consolidated Statements of Cash Flows for the nine-month period ended September 30, 2005 are not necessarily indicative of those for the full year ending December 31, 2005. For further information on the Company's historical financial results, refer to the Consolidated Financial Statements and Notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004. Certain prior period amounts have been re-classified to conform with the current period's presentation. 2. SIGNIFICANT ACCOUNTING POLICIES Revision in the Classification of Certain Securities - During the first quarter of fiscal 2005, the Company concluded that it was appropriate to classify its auction rate municipal bonds as current investments. Previously, such investments had been classified as cash equivalents. Accordingly, the Company has revised the classification to report these securities as current investments in a separate line item on its Condensed Consolidated Balance Sheet as of December 31, 2004. The Company has also made corresponding adjustments to its Condensed Consolidated Statement of Cash Flows for the period ended September 30, 2004, to reflect the gross purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. This change in classification does not affect previously reported cash flows from operations or from financing activities in the Company's previously reported Consolidated Statements of Cash Flows, or its previously reported Consolidated Statements of Income for any period. As of December 31, 2004, $154.7 million of these current investments were previously classified as cash and cash equivalents on the Company's Consolidated Balance Sheet. For the year ended December 31, 2004, net cash used in investing activities related to these current investments of $154.7 million was included in cash and cash equivalents in the Company's Consolidated Statements of Cash Flows. The Company did not hold this type of investment during the years ended December 31, 2003 or 2002. Short-Term Investments - At September 30, 2005 and December 31, 2004, the Company held $54.6 million and $154.7 million, respectively, of short-term investments, which consist of auction rate municipal bonds classified as available-for-sale securities. The Company's investments in these securities are recorded at cost, which approximates fair market value due to their variable interest rates, which typically reset within 35 days, and, despite the long-term nature of their stated contractual maturities, the Company has the ability to readily liquidate these securities. As a result, the Company had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from its current investments. All income generated from these current investments was recorded as interest income. 5 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2005 (unaudited) Accounting for Stock Based Compensation - In accordance with the provisions of SFAS 148 "Accounting for Stock-Based Compensation", the Company has elected to continue to account for its stock options under APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. Under APB 25, because the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on date of grant, no compensation expense is recognized. However, during 2005 and 2004, stock-based compensation under APB 25 was recognized for the vesting of restricted stock. For the purposes of SFAS 148 pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information follows:
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ------------------------ 2005 2004 2005 2004 ----------- ------------ ----------- ----------- (In thousands, except per share data) Net income, as reported................................. $ 23,392 $ 34,352 $ 76,900 $ 94,753 Add: Stock-based compensation expense included in reported net income, net of taxes................... 792 397 2,079 1,190 Deduct: Total stock-based compensation expense determined under fair-value based method for all awards, net of taxes......................................... (2,347) (1,663) (6,519) (8,516) ----------- ------------ ------------------------ Pro forma net income.................................... $ 21,837 $ 33,086 $ 72,460 $ 87,427 =========== ============ ======================== Basic earnings per share: As reported.......................................... $ 0.24 $ 0.32 $ 0.76 $ 0.88 Pro-forma............................................ 0.23 0.31 0.72 0.81 Diluted earnings per share: As reported.......................................... 0.23 0.30 0.71 0.83 Pro forma............................................ 0.21 0.29 0.67 0.76
The fair value for each option grant under the stock option plans was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the various grants made. The weighted average assumptions for the 2002 grants are: risk free interest rates ranging from 3.19% to 4.92%; no dividend yield; expected volatility of 0.83; and expected life of 5 years. The weighted average assumptions for the 2003 grants are: risk free interest rates ranging from 2.32% to 3.43%; no dividend yield; expected volatility ranging from 0.59 to 0.78; and expected life of 5 years. The weighted average assumptions for the 2004 grants are: risk free interest rates ranging from 2.81% to 3.96%; no dividend yield; expected volatility ranging from 0.48 to 0.58; and expected life of 5 years. There were no options granted during the nine-month period ended September 30, 2005. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, the option valuation model requires the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its employee stock options. 6 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) Recent Accounting Pronouncements - On December 16, 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), ("SFAS 123(R)"), which is a revision of SFAS 123. SFAS 123(R) supersedes APB 25, and amends SFAS No. 95, "Statement of Cash Flows". Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure will soon no longer be an alternative. SFAS 123(R) must be adopted by the Company no later than January 1, 2006. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS 123(R) on January 1, 2006, using the modified-prospective method as proscribed in SFAS 123(R). As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using APB 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)'s fair value method will have an impact on the Company's results of operations, although it will have no impact on its overall financial position. While the Company cannot estimate the level of share-based payments to be issued in the future, based on the stock options that are currently outstanding, the Company expects that the adoption of SFAS 123(R) will result in a $5.4 million charge to operations in 2006. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options and the fair value of the Company's common stock at such dates), the amount of operating cash flows recognized in prior annual periods for such excess tax deductions was $3.6 million and $14.2 million in 2004 and 2003, respectively, and $0 in 2002. Such amounts were $6.2 million and $2.4 million for the nine months ended September 30, 2005 and 2004, respectively. 3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
September 30, December 31, 2005 2004 -------------- --------------- (In thousands) Accounts receivable, net, consist of the following: Accounts receivable.......................................... $ 81,049 $ 89,594 Less allowances for: Doubtful accounts......................................... (4,367) (4,851) Advertising, markdowns, returns, volume discounts and other..................................................... (12,879) (11,167) -------------- --------------- Total, net................................................... $ 63,803 $ 73,576 ============== =============== Inventories, net, consist of the following: Finished goods............................................... $ 4,364 $ 3,034 Component parts, raw materials and work-in-process........... 4,722 3,553 -------------- --------------- Total........................................................ $ 9,086 $ 6,587 ============== =============== Accrued expenses and other current liabilities consist of the following: Advertising and promotions................................... $ 4,560 $ 5,488 Inventory purchases.......................................... 3,686 3,032 Bonuses...................................................... 5,959 5,545 Pension benefits............................................. 5,596 6,538 Litigation and legal fees................................... 10,116 8,989 Other........................................................ 8,621 14,370 -------------- --------------- Total........................................................ $ 38,538 $ 43,962 ============== ===============
7 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) 4. EARNINGS PER SHARE The total number of shares of common stock outstanding as of September 30, 2005 was 97,128,222 net of treasury shares; assuming the exercise of all outstanding stock options and warrants, that number would be 111,414,800. During the nine-month period ended September 30, 2005, 3,165 shares of common stock were issued through stock option exercises. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Numerator: Net income.......................................... $ 23,392 $ 34,352 $ 76,900 $ 94,753 ============ ============ =========== =========== Denominator: Denominator for basic earnings per share............ 96,647 107,130 101,273 108,022 Effect of dilutive options and restricted stock..... 6,527 6,334 6,645 6,663 ------------ ------------ ----------- ----------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions....................................... 103,174 113,464 107,918 114,685 ============ ============ ======================= Basic earnings per share............................... $ 0.24 $ 0.32 $ 0.76 $ 0.88 Diluted earnings per share............................. $ 0.23 $ 0.30 $ 0.71 $ 0.83
During the three and nine-month periods ended September 30, 2005, the Company purchased 1.6 and 9.3 million shares, respectively, of its common stock through the share repurchase program announced on July 12, 2004 and increased in May 2005. On July 19, 2005, the Company completed its $250 million stock repurchase program, under which the Company repurchased a total of 13.5 million shares of its common stock, at an average purchase price of $18.48 per share. 5. FILM SLATE FACILITY OBLIGATION On September 1, 2005, the Company, through its wholly-owned consolidated subsidiary, MVL Film Finance LLC, closed a non-recourse $525,000,000 financing that will enable it to produce its own slate of feature films (the "Film Facility"). The Film Facility, which expires on September 1, 2016 or sooner if the films produced under the Film Facility fail to meet certain defined performance measures, consists of $465 million in revolving senior bank debt and $60 million in debt referred to as mezzanine debt, which is subordinated to the senior bank debt. An insurance company has insured repayment of the senior debt. The rate for the senior bank debt, including the insurance company's fees, is LIBOR (4.07% at September 30, 2005) or the commercial paper rate, as applicable, plus 1.635%. The interest rate for the mezzanine debt is LIBOR plus 7.00%. Pursuant to the terms of the financing, the mezzanine debt will be drawn first and will remain outstanding for the life of the senior bank facility. The Company must comply with a minimum tangible net worth covenant and various administrative covenants. In addition, conditions to the initial funding of the fifth film to be produced under the Film Facility, and each film thereafter, are the satisfaction of an interim asset test and foreign pre-sales test, as defined in the Film Facility. 8 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) The Company entered into an interest rate cap agreement in connection with the Film Facility whereby LIBOR is capped at 6.0% for debt outstanding under the Film Facility up to certain stipulated notional amounts which vary over the term of the Film Facility. The notional amount of the interest rate cap agreement at September 30, 2005 was $25 million. The interest rate cap is recorded at fair value and included in deferred financing costs in the accompanying balance sheet at September 30, 2005. The interest rate cap expires on October 15, 2014. As of September 30, 2005, MVL Film Finance LLC had $24.8 million in outstanding mezzanine borrowings through the Film Facility. The borrowings were used primarily to finance transaction costs related to the development and closing of the facility ($21.5 million) and the purchase of the interest rate cap discussed above ($3.2 million). The transaction costs are being amortized over the minimum expected term of the facility, which approximates 4.5 years. 6. SEGMENT INFORMATION The Company's business is divided into three operating segments: Toy, Publishing and Licensing. Licensing Segment The Licensing segment is responsible for the licensing of Marvel characters for use in a wide variety of products, including toys, electronic games, apparel, accessories, footwear, collectibles and novelties; in a variety of media, including feature films, television programs, publications and destination based entertainment (e.g., theme parks); and for promotional use. Publishing Segment The Publishing segment creates and publishes comic books and trade paperbacks principally in North America. Marvel has been publishing comic books since 1939 and has developed a roster of more than 5,000 Marvel characters. The Company's titles feature classic Marvel Super Heroes such as Spider-Man, X-Men, the Incredible Hulk, Fantastic Four and newly developed Marvel characters. Toy Segment The Toy segment designs, develops and markets toys (primarily action figures and accessories) to the worldwide marketplace. The majority of these toys are produced and sold by Marvel's master toy licensee, Toy Biz Worldwide Ltd. ("TBW"). The Company itself produces and sells a limited line of toys it designs, develops and markets based upon movies and television shows featuring Spider-Man and produced by Sony Pictures, and upon characters that the Company has licensed in, such as characters from the movie trilogy The Lord of the Rings, the forthcoming movie and television shows based on the character Curious George and the television shows for Total Nonstop Action ("TNA") wrestling. 9 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) Set forth below is certain operating information for the segments of the Company.
Three months ended September 30, 2005 -------------------------------------------------------------- Licensing Publishing Toys Corporate Total -------------------------------------------------------------- (In thousands) Net sales................... $ 33,218 $ 25,800 $ 22,110 $ -- $ 81,128 Costs and expenses.......... 13,171 14,835 11,874 6,143 46,023 Operating income (loss)..... 20,051 10,974 10,468 (6,143) 35,350 Three months ended September 30, 2004 -------------------------------------------------------------- Licensing Publishing Toys Corporate Total -------------------------------------------------------------- (In thousands) Net sales................... $ 64,224 $ 22,621 $ 48,338 $ -- $ 135,183 Costs and expenses.......... 15,204 14,572 36,748 8,084 74,608 Operating income (loss)..... 49,024 9,372 11,833 (8,084) 62,145
Nine months ended September 30, 2005 -------------------------------------------------------------- Licensing Publishing Toys Corporate Total -------------------------------------------------------------- (In thousands) Net sales................... $ 148,318 $ 69,082 $ 56,012 $ -- $ 273,412 Costs and expenses.......... 60,561 41,334 28,568 18,054 148,517 Operating income (loss)..... 87,966 27,757 28,069 (17,404) 126,388 Nine months ended September 30, 2004 ------------------------------------------------------------- Licensing* Publishing Toys Corporate Total ------------------------------------------------------------- (In thousands) Net sales.................. $ 158,078 $ 63,874 $ 191,024 $ -- $ 412,976 Costs and expenses......... 47,724 40,598 137,020 16,352 241,694 Operating income (loss).... 118,475 25,651 55,284 (16,352) 183,058 (*) Includes equity in net income of joint venture of $8,117 from January 1, 2004 to March 31, 2004.
10 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) 7. BENEFIT PLANS In connection with the 1999 sale of a subsidiary, the Company retained certain liabilities related to the Fleer/Skybox International Retirement Plan, a defined benefit pension plan for employees of such subsidiary (the "Fleer/Skybox Plan"). In prior years, this plan was amended to freeze the accumulation of benefits and to prohibit new participants. Assumptions used for the 2005 and 2004 expense include a discount rate of 5.75% and 6.25%, respectively, and an expected rate of return on plan assets of 7.0% and 8.0%, respectively.
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ---------------------- 2005 2004 2005 2004 ------------ ------------- ---------- ----------- (In thousands) Total cost for plan period Service cost....................................... $ -- $ -- $ -- $ -- Interest cost...................................... 283 293 850 879 Expected return on plan assets..................... (240) (277) (720) (832) Amortization of: Unrecognized net transition obligation (asset) -- -- -- -- Unrecognized prior service cost................. (13) (13) (40) (39) Unrecognized net loss........................... 45 30 135 90 ------------ ------------- ---------- ----------- Net periodic pension cost............................. $ 75 $ 33 $ 225 $ 98 ============ ========================= ===========
8. INCOME TAXES The Company's effective tax rate for the three-month period ended September 30, 2005 (31.9%) was lower than the statutory rate due primarily to the recognition of additional tax benefit relating to state and local net operating losses, the effects of the consolidation of the Spider-Man Merchandising, L.P. (the "Joint Venture"), and Federally tax free investment returns offset by state and local taxes. The effective tax rate for the third quarter reflects a benefit of 4.5% from discrete items primarily related to the valuation of deferred tax assets for state and local net operating losses, which will not recur in future quarters. The Company's effective tax rate for the nine-month period ended September 30, 2005 (36.7%) was higher than the Federal statutory rate due primarily to state and local taxes offset by a recognition of additional tax benefit relating to state and local net operating losses, the effects of the consolidation of the Joint Venture, and Federally tax-free investment returns. The Company's effective tax rate for the three-month period ended September 30, 2004 (34.3%) was lower than the Federal statutory rate due primarily to the effects of the consolidation of the Joint Venture offset by the impact of state and local taxes. The Company's effective tax rate for the nine-month period ended September 30, 2004 (36.0%) was higher than the Federal statutory rate due primarily to state and local taxes offset by the effects of the consolidation of the Joint Venture. The Company is not responsible for the income taxes related to the minority share of the Joint Venture income, and as such, the minority share of the Joint Venture income is deducted in computing the Company's effective tax rate. The impact of this reduction to the Company's effective tax rate is greater in periods when the operating results of the Joint Venture are higher and lesser in periods when the operating results of the Joint Venture are lower. 11 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) 9. COMMITMENTS AND CONTINGENCIES Legal Matters The Company is a party to certain legal actions described below. In addition, the Company is involved in various other legal proceedings and claims incident to the normal conduct of its business. Although it is impossible to predict the outcome of any legal proceeding and there can be no assurances, the Company believes that its legal proceedings and claims (including those described below), individually and in the aggregate, are not likely to have a material adverse effect on its financial condition, results of operations or cash flows. Brian Hibbs, d/b/a Comix Experience v. Marvel. On May 6, 2002, in New York State Supreme Court, County of New York, Mr. Hibbs commenced a putative class action alleging that the Company breached its own Terms of Sale Agreement to comic book retailers and resellers, breached its obligation of good faith and fair dealing, fraudulently induced plaintiff and other members of the purported class to buy comics and unjustly enriched itself. Mr. Hibbs sought certification of the putative class and his designation as its representative, compensatory damages of $8 million on each cause of action and punitive damages in an amount to be determined at trial. The parties reached a settlement in which the retailers and resellers would receive a credit to their account with the Company's exclusive distributor, depending on their prior purchases of certain comic book issues. On August 9, 2005, the court certified the class for settlement purposes and approved the parties' settlement as fair, reasonable and adequate. As the Court's order was entered on August 25, 2005, and the time for any class member to appeal has elapsed, the settlement is currently being administered and class members are receiving their agreed upon credits pursuant to the settlement. The Company believes this matter is now concluded. Tribune Entertainment Company v. Marvel Enterprises, Inc. On October 30, 2003, Tribune Entertainment Company ("Tribune") filed a complaint against the Company in New York State Supreme Court, New York County. The complaint alleges three causes of action: fraud, negligent misrepresentation, and breach of warranty, all in connection with the license from the Company under which Tribune produced the Mutant X television series. Prior to release of the Mutant X television series in 2001, both the Company and Tribune were sued by Twentieth Century Fox Film Corporation ("Fox"), the licensee of the X-Men properties for motion pictures, among other rights. In 2003, the Fox litigation was settled. Tribune seeks to recover $31 million in damages from Marvel in connection with the Mutant X television series and the Fox litigation. On October 4, 2005, after completion of fact discovery, the Company filed a motion for summary judgment seeking dismissal of all of Tribune's claims. That motion will be decided by the Court after Tribune's answering papers and the Company's reply papers, if any, are filed. The action is in the expert discovery phase and a tentative trial date of March 1, 2006 has been scheduled by the Court. 10. Subsequent Events Credit Facility On November 9, 2005, the Company entered into an agreement for a credit facility with HSBC Bank USA, National Association (the "HSBC Credit Facility") to provide for a $150 million revolving credit line (this amount decreases to $100 million on March 31, 2006) with a sublimit of $27 million for the issuance of letters of credit. Borrowings under the HSBC Credit Facility may be used by the Company for working capital and other general corporate purposes and for repurchases of the Company's common stock. The HSBC Credit Facility, which expires on October 31, 2007, contains customary event-of-default provisions and covenants regarding the Company's net worth, leverage ratio, and free cash flow. The HSBC Credit Facility is secured by a first priority perfected lien on (a) the Company's accounts receivable, (b) the Company's rights in its master toy license with TBW and in any successor license, and (c) all common stock of the Company repurchased after the facility's closing date. Borrowings under the facility would bear interest at HSBC's prime rate or, at the Company's choice, at LIBOR-plus-1.25% per annum. 12 MARVEL ENTERTAINMENT, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued) September 30, 2005 (unaudited) Stock Repurchase Program On November 9, 2005, the Company authorized a $250 million common stock repurchase program. Pursuant to the authorization, the Company may, at its option, purchase shares of its common stock from time to time in the open market or through privately negotiated transactions until such time as $250 million of the Company's shares have been repurchased under the program. The Company's largest stockholder and Chief Executive Officer, Isaac Perlmutter, has agreed not to sell any shares until the earlier of October 15, 2006 or the last day in which the repurchase program is in place. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURTIES LITIGATION REFORM ACT OF 1995 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The factors discussed herein concerning the Company's business and operations could cause actual results to differ materially from those contained in forward-looking statements made in this Form 10-Q Quarterly Report. When used in this Form 10-Q, the words "intend", "estimate", "believe", "expect", and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause the Company's financial performance to differ materially from that expressed in any forward-looking statements made by the Company: (i) a decrease in the level of media exposure or popularity of the Company's characters, (ii) financial difficulties of the Company's major licensees, (iii) delays and cancellations of movies and television productions based on the Company's characters, (iv) poor performance of major movies based on the Company's characters, (v) toy-production delays or shortfalls, continued concentration of toy retailers, and toy inventory risk and (vi) significant appreciation of the Chinese currency against other currencies and the imposition of quotas or tariffs on products manufactured in China. In addition, in connection with the Company's Marvel Studios operations, including those related to the slate of feature films the Company plans to produce on its own with proceeds from its $525 million film slate facility (the "Film Facility"), the following factors, among others, could cause the Company's or Marvel Studios' financial performance to differ materially from that expressed in any forward-looking statements made by the Company: (i) Marvel Studios' potential inability to attract and retain creative talent, (ii) the potential lack of popularity of the Company's films, (iii) the expense associated with producing films, (iv) union activity which could interrupt film production, (v) that Marvel Studios has not, in the past, produced film projects on its own, (vi) changes or disruptions in the way films are distributed including a decline in the profitability of the DVD market, (vii) piracy of films and related products, (viii) that only a limited number of films will be released, (ix) fluctuations in reported income or loss or difficulties in implementing internal controls related to the accounting of film production activities, (x) Marvel Studios' dependence on a single distributor, (xi) the potential inability of the Company's subsidiaries to meet the conditions necessary for an initial funding of a film under the Film Facility, and (xii) the potential inability of the Company's subsidiaries to obtain financing to make more than four films if certain tests related to the economic performance of the film slate are not satisfied (specifically, an interim asset test and a foreign pre-sales test). For further discussion of the factors described above, please see the section entitled "Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995" in the Company's 2004 annual report on Form 10-K and the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 6, 2005. Forward-looking statements in this report speak only as of the date of this report. The Company does not intend to update or revise any forward-looking statements to reflect events or circumstances after the date as of which they are made, including changes in business strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events. 14 Management Overview of Business Trends Current Direction The Company principally operates in three distinct segments: Licensing (including the Company's Marvel Studios media licensing operations), Publishing and Toys. The Company expects that in the future, the expansion of the studio operations associated with the Company's recently announced Film Facility will cause the Company to treat Marvel Studios as a segment separate from the Company's licensing operations. The Company's growth strategy has been to increase exposure of Marvel characters by licensing them to third parties for development as movies and television shows. The increased exposure can then create revenue opportunities for the Company through increased sales of toys and other licensed merchandise. The Company's results have been significantly affected by the release of movies based on its characters, which has fueled demand for products based on the characters featured in the movie. For example, in 2004, the Company benefited from the theatrical release of the movie Spider-Man 2. This release resulted in increased awareness of the Spider-Man character family, which subsequently drove sales of Marvel-branded licensed products, published materials and toys based on that character family. The Company hoped to similarly benefit from the July 2005 theatrical release of the movie Fantastic Four. However, although the Fantastic Four movie experienced significant box-office success, the Company's Toy and Licensing segments did not achieve similar benefits in sales based on the Fantastic Four character family for the three and nine months ended September 30, 2005. While Marvel is involved in the creative direction of all entertainment projects based on its characters, the only completed entertainment projects it has produced are published materials. All other completed entertainment projects were conducted through licenses of Marvel's intellectual property. Growth Strategy for the Future The Company remains committed to expanding its brands through movies and television shows created by third parties. This media licensing strategy, however, has inherent limitations, both in terms of profit potential and control over items such as content, release dates, and advertising. Accordingly, on September 1, 2005, MVL Film Finance LLC, a newly formed, special-purpose, bankruptcy-remote, wholly-owned consolidated subsidiary of the Company, closed a $525,000,000 financing facility that will enable the Company to produce its own slate of feature films (the "Film Facility"). The Film Facility provides the Company with another vehicle for potential growth. Films produced by Marvel Studios through the Film Facility could provide the Company with a meaningful source of profits and more control over the destiny of its film projects. The following Company segment review is accompanied by a description of the Film Facility. Licensing Marvel's Licensing segment is responsible for the merchandising, licensing and promotion of Marvel's characters worldwide. The Licensing segment expanded its international presence in 2004 through newly established sales offices located in London and Tokyo. Also during 2004, the Company began consolidating the operations of Spider-Man Merchandising, LP (the "Joint Venture"), its joint venture with Sony Pictures Entertainment, Inc. The Licensing segment is pursuing a strategy of concentrating its licensee relationships in a smaller number of high-quality licensees, and negotiating higher guaranteed royalty amounts from each licensee. The Licensing segment is also focusing on entering into licenses in new product categories, such as the wireless category, which was first licensed in late 2004, and the massively multi-player online game category, which was licensed in 2005. The Company typically enters into multi-year merchandise license agreements that specify minimum royalty payments and include a significant down payment upon signing. The Company recognizes license revenue when it satisfies the requirements of completing the earnings process, including the determination that the credit-worthiness of the licensee reasonably assures collectibility of any specified but unpaid minimum royalties. Once the earnings process is complete, the Company records as revenue the 15 present value of the minimum royalty payments. If cumulative earned royalties exceed the specified minimum royalty payments, such excess royalties are recorded as revenue when earned and are referred to as "overages". If the licensee is not sufficiently creditworthy, the Company does not recognize scheduled royalty payments until they are received. In licenses in which the Company has significant continuing involvement or a performance obligation, the minimum royalty payments are recognized as and when such obligations are fulfilled. Licensing fees collected in advance of obligations being fulfilled are recorded as deferred revenue. Revenue recognized under license agreements during the periods ended September 30, 2005 and 2004 was generated within the product categories set forth below. The table does not include royalties earned from toys (primarily action figures and accessories) produced and sold by the Company's master toy licensee, Toy Biz Worldwide Ltd. ("TBW"), as such revenue is recorded in the Company's Toy segment. The "Other" category includes licensing revenue from domestics, collectibles and other items.
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ----------------------------- 2005 2004 2005 2004 ------------- ----------- ------------- ------------- (in millions) (in millions) Apparel and accessories..................... $ 9.8 $ 24.1 $ 42.6 $ 64.3 Entertainment (including studios, themed attractions and electronic games)......... 4.5 19.7 46.0 35.9 Toys........................................ 11.7 11.4 24.9 26.8 Other....................................... 7.2 9.0 34.8 31.1 ------------- ----------- ------------- ------------- Total....................................... $ 33.2 $ 64.2 $ 148.3 $ 158.1 ============= =========== ============= =============
Licensing revenue was derived from the following sources during the periods ended September 30, 2005 and 2004:
Three Months Ended Nine Months Ended September 30, September 30, -------------------------- ----------------------------- 2005 2004 2005 2004 ------------- ----------- ------------- ------------- (in millions) (in millions) Domestic.................................... $ 20.5 $ 17.5 $ 76.3 $ 78.4 International............................... 7.5 8.4 30.1 22.3 Joint Venture............................... 2.3 28.4 20.4 40.0 Studios..................................... 2.9 9.9 21.5 17.4 ------------- ----------- ------------- ------------- Total....................................... $ 33.2 $ 64.2 $ 148.3 $ 158.1 ============= =========== ============= =============
Publishing Marvel's Publishing segment is in the process of expanding its advertising and promotions business with an increased emphasis on custom comics and in-school marketing. The Publishing segment also intends to continue its long-term focus on expanding distribution to new channels, such as the mass market, and expanding its product line to a younger demographic. The Company does not expect these initiatives to have a significant impact on 2005 revenue. Growth in 2005 is largely due to the expansion of core product lines of comics and trade paperbacks and the introduction of product into new distribution channels. Toys The Company has licensed to TBW the right to produce and sell action figures and accessories, and certain other toys, the Company designs. Marvel also provides product development, marketing and sales services for TBW in exchange for a service fee. The Company receives royalties and service fees from TBW based on TBW's sales of Marvel-designed toys produced and sold by TBW. All royalties received by the Company from the sales of other licensed toys are recorded as royalties in the Company's Licensing segment, as the Company does no product development, marketing, sales or other services for these licensees. 16 Toys produced and sold by or for the account of the Company for the period from January 1, 2004 through September 30, 2005 were primarily (i) toys based on Spider-Man movies and television shows produced by Sony Pictures, (ii) toys based on the Lord of the Rings movie trilogy and (iii) toys based on the television shows for Total Nonstop Action ("TNA") wrestling. The Company and TBW have entered into agreements which require the Company to provide TBW with certain administrative and management support for which TBW reimburses the Company. For the nine months ended September 30, 2005 and 2004, the Company was reimbursed $6.5 and $6.4 million, respectively, for administrative management and support. Film Slate The Film Facility will enable the Company to produce its own slate of feature films, including films featuring the following Marvel characters: o Ant-Man o Black Panther o Captain America o Cloak & Dagger o Doctor Strange o Hawkeye o Nick Fury o Shang-Chi Films in the film slate may also be titled Power Pack and feature that family of characters (i.e., Alex, Jack, Julie and Katie Power) or The Avengers and feature Ant-Man, Black Panther, Captain America, Hawkeye and Nick Fury. Also included in the film slate are many of the supporting characters that would be most closely associated with the featured characters and character families. For example, Captain America's sidekick, Bucky Barnes, and his nemesis, Red Skull, are both included in the film slate. While these characters may be developed as movies by Marvel only through the film slate, Marvel may continue to license its other characters for movie productions by third parties, obtain financing to produce movies based on these other characters itself or with others or, with the consent of the film slate lenders, produce films based on these other characters through the Film Facility. Key Financial Terms of the Film Facility Financing Available; Rate of Interest; Borrowings Outstanding The Film Facility, which expires on September 1, 2016 or sooner if the films produced under the facility fail to meet certain defined performance measures, consists of $465 million in revolving senior bank debt and $60 million in debt referred to as mezzanine debt, which is subordinated to the senior bank debt. Both Standard & Poor's, a division of the McGraw-Hill Companies, Inc., and Moody's Investor Rating Service, Inc. have given the senior bank debt an investment grade rating. In addition, Ambac Assurance Corporation has insured repayment of the senior debt, raising its rating to AAA. The rate for the senior bank debt, including Ambac's fees, is LIBOR or the commercial paper rate, as applicable, plus 1.635%. The interest rate for the mezzanine debt is LIBOR plus 7.00%. Pursuant to the terms of the financing, the mezzanine debt will be drawn on first and will remain outstanding for the life of the senior bank facility. As of September 30, 2005, MVL Film Finance LLC had $24.8 million in outstanding mezzanine borrowings through the Film Facility. The borrowings were used primarily to finance transaction costs related to the development and closing of the facility. Limitations on Recourse under Film Facility The borrowings under the Film Facility are non-recourse to the Company and its affiliates, other than MVL Film Finance LLC. MVL Film Finance LLC has pledged all of its assets, principally consisting of the theatrical film rights to the characters included in the film slate, as collateral for the borrowings. 17 While the borrowings are non-recourse to the Company, the Company has agreed to instruct its subsidiaries involved in the film slate to maintain certain operational covenants. If such covenants are not maintained, the Company may be liable for the actual damages caused by such failure. The Company's liability in this circumstance would be subject to limitations even then, including the exclusion of consequential damages arising out of the breach of these operational covenants. Use of Funds Funds under the facility will be used for the production of up to ten films featuring the characters included in the film slate. Funds may be used to produce more than one film based on a single character or character family, so even if ten films are produced using the funds from the facility, not all characters and character families included in the film slate will necessarily be the subject of a film financed under the Film Facility. Initial Funding Conditions For any film included in the Film Facility, an initial funding may be made only if certain conditions are met. These conditions include obtaining a satisfactory completion bond, production insurance, distribution for the film and compliance with representations, warranties and covenants contained in the transaction documents. The distribution requirements, described in detail below, require Marvel to pre-sell the distribution rights to a film in Australia and New Zealand, Japan, Germany and German speaking Switzerland and Austria, France and French speaking Belgium, and Spain (the "Reserved Territories") and obtain an agreement with a major studio to distribute the film in all other territories. To obtain a completion bond, Marvel will need to have the main operational pieces to producing a film, including approved production, cash flow and delivery schedules, an approved budget, an approved screenplay and the key members of the production crew, including the director and producer, in place. Additional Initial Funding Conditions for Fifth Film and each Film Thereafter In addition, a condition to the initial funding for the fifth film and for each film thereafter is the satisfaction of an interim asset test and a foreign pre-sales test. The interim asset test requires the value of MVL Film Finance LLC's assets to exceed its debt by a ratio of 1.15 to 1. The foreign presales test requires that, on a cumulative basis, at least 33% of the cost of each prior film, as defined in the Film Facility, has been paid for by the pre-sale of the distribution rights to the Reserved Territories and/or the proceeds of any government rebate, subsidy or tax incentive program. Unrestricted Proceeds of the Film Facility For each film, the Company will receive a fixed producer fee of $1,500,000 as an advance against a 5% participation in the gross receipts and proceeds of distribution pre-sales (the "5% Participation") and will retain all of the film-related merchandising revenues, such as revenues from toy sales and product licensing based on the movies. These merchandising revenues and the 5% Participation are neither pledged as collateral nor subject to cash restrictions under the facility. Restricted Proceeds of the Film Facility MVL Film Finance LLC will receive and retain funds from various revenue streams (including: box office receipts, DVD/VHS sales, television, and soundtrack sales relating to the films financed under the slate) after payment of production costs, distribution fees, marketing costs, interest expense and principal repayment. These revenue streams will be placed into a blocked account maintained by MVL Film Finance LLC and may only be used for the production of films and repayment of indebtedness under the facility. After the release of the third film, funds may be withdrawn from the blocked account for Marvel's general corporate purposes (a permitted distribution) under limited circumstances, including compliance with certain financial coverage tests and a minimum balance requirement. After three films, the minimum balance requirement on deposit in the blocked account to make a permitted distribution is $350 million. For each film thereafter until film nine, the minimum balance requirement is reduced by $50 million. 18 Ability to Refinance or Discontinue Film Facility The Film Facility allows MVL Film Finance LLC to either refinance or simply discontinue the financing at any time without penalty by prepaying all outstanding indebtedness and reducing the amount available under the financing to zero. Development and Distribution of the Film Slate As a film development company, MVL Productions LLC, a wholly-owned consolidated subsidiary of the Company, will engage in a broad range of pre-production services including developing film concepts and screenplays, preparing budgets and production schedules, obtaining production insurance and completion bonds and forming a special-purpose, bankruptcy-remote subsidiary to produce each film as a work-made-for-hire for MVL Film Finance LLC. MVL Productions LLC has also entered into a studio distribution agreement with Paramount Pictures Corporation ("Paramount"). Distribution: Worldwide Excluding Reserved Territories MVL Productions LLC's studio distribution agreement with Paramount requires Paramount, at the request of MVL Productions LLC, to distribute up to ten films produced under the Film Facility. Paramount is required to release each film during one of two prime release periods each year - the Spring/Summer and Fall/Holiday seasons. Under the studio distribution agreement, Paramount has guaranteed MVL Productions LLC wide distribution outside of the Reserved Territories with commensurate advertising and marketing efforts for each film. Included in Paramount's distribution rights are exclusive theatrical and non-theatrical (e.g., exhibition on airplanes, schools and military installations), home video, pay television and international television (excluding the Reserved Territories) distribution rights. Excluded are all distribution rights with respect to the Reserved Territories and free television distribution in the United States. As compensation for its services under the studio distribution agreement, Paramount is permitted to recoup its distribution costs (including print and advertising costs) and expenses for each film from the gross receipts of that film and to receive a distribution fee. Distribution: Reserved Territories MVL Productions LLC is required to pre-sell the distribution rights for each film in the Reserved Territories. The proceeds of these pre-sale arrangements will provide a source of funding for the direct costs of the films in addition to the Film Facility. The target for such pre-sales is 33% of the costs of each film. Obtaining this target (on a cumulative basis) is a condition to the initial funding for the fifth film and for each film thereafter. Reimbursement of Development Costs and Overhead Under the Film Facility, the Company expects to incur expenses, principally incremental overhead expenses and costs of developing each film to the stage at which the conditions for an initial funding of such film are met. Until the initial funding for a film, these costs will be paid for by the Company. At initial funding, these development costs and incremental overhead expenses of the Company related to the film of up to two percent (2%) of the costs for that film will be reimbursed by the Film Facility. The Company will be responsible for any additional overhead expenses and any development costs that are not reimbursed in the event the conditions of an initial funding for the film to which such development costs relate were never met. Costs of Film Facility in 2005 The Company expects that expenses (primarily interest expense) related to the Film Facility will be approximately $4.3 million during 2005, of which $0.9 million has been recognized in the third quarter of 2005 with the balance expected in the fourth quarter. While some of these expenses may be reimbursable as described above, the Company cannot estimate at this time the amount of additional expenses that will be reimbursable through additional borrowings under the Film Facility. 19 Marvel Studios Marvel Studios is in the process of ramping up its operations to meet the increased responsibilities it will face as a working movie studio. Marvel Studios has relocated to new office space and is in the process of adding key personnel to its film operations. In addition, Marvel Studios continues to work on media licensing projects at various stages of development or production. Results of Operations Three-month period ended September 30, 2005 compared with the three-month period - -------------------------------------------------------------------------------- ended September 30, 2004 - ------------------------ Net Sales
Three Months ended September 30, ------------------------ 2005 2004 Change ------------------------------------- (dollars in millions) Licensing................................... $ 33.2 $ 64.2 (48)% Publishing.................................. 25.8 22.6 14% Toys........................................ 22.1 48.4 (54)% ----------- ----------- Total....................................... $ 81.1 $ 135.2 (40)% =========== ===========
The Company's consolidated net sales decreased $54.1 million to $81.1 million in the third quarter of 2005, primarily as a result of the decrease in sales from the Licensing and Toy segments. Licensing segment sales decreased $31.0 million from $64.2 million during the third quarter of 2004 to $33.2 million during the third quarter of 2005. This decrease was principally due to the reduction in sales derived from the Joint Venture and from studio media licensing generated by the July 2004 Spider-Man 2 theatrical release. Sales derived from the Joint Venture for the third quarter of 2005 was $2.4 million compared to $28.3 million in the prior year period. Studio media licensing related to Spider-Man 2 decreased $4.7 million in the third quarter of 2005. Sales from the Publishing segment increased $3.2 million to $25.8 million in the third quarter of 2005, resulting from higher sales of trade paperbacks into the bookstore and direct market channels. Sales from the Toy segment decreased $26.3 million to $22.1 million in the third quarter of 2005, primarily due to a $35.0 million decrease in the direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release. This decrease was partially offset by increases in royalty and service fee revenue derived from licensed toy sales associated with TBW. 20 Cost of Revenues
Three Months ended September 30, ------------------------------------------------- 2005 2004 % of Net % of Net Amount Sales Amount Sales ---------- ------------ ------------ ------------ (dollars in millions) Licensing....................................... $ -- N/A $ -- N/A Publishing...................................... 11.0 43% 10.6 47% Toys............................................ 3.1 14% 27.7 57% ----------- ------------- Total........................................... $ 14.1 17% $ 38.3 28% =========== =============
Consolidated cost of revenues decreased $24.2 million to $14.1 million in the third quarter of 2005, primarily due to decreased production costs, resulting from lower direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release, as described above. Consequently, the Company's consolidated cost of revenues as a percentage of sales decreased to 17% in the third quarter of 2005, as compared to 28% in the third quarter of 2004. Publishing cost of revenues as a percentage of sales decreased from 47% in the third quarter of 2004 to 43% in the third quarter of 2005 as a result of an increase in sales of trade paperbacks, which have lower creative production costs than comic books. The decrease in Toy cost of revenues from 57% of net sales in the third quarter of 2004 to 14% in the third quarter of 2005 reflects a change in product mix due to a decrease in production costs associated with decreased revenue derived from the direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release and an increase in royalty and service fee revenue from licensed toy sales associated with TBW, for which there are no production costs. Selling, General and Administrative Expenses
Three Months ended September 30, -------------------------------------------------- 2005 2004 % of Net % of Net Amount Sales Amount Sales ------------ ------------ ---------- ------------- (dollars in millions) Licensing............................... $ 13.1 39% $ 15.2 24% Publishing.............................. 3.9 15% 3.9 17% Toys.................................... 7.6 34% 7.7 16% Corporate Overhead...................... 6.1 N/A 8.1 N/A ------------- ----------- Total................................... $ 30.7 38% $ 34.9 26% ============= ===========
Consolidated selling, general and administrative ("SG&A") expenses decreased $4.2 million to $30.7 million in the third quarter of 2005, primarily due to lower expenses in the Licensing and Corporate segments. Consolidated SG&A as a percentage of net sales increased to 38% in the third quarter of 2005 as compared to 26% in the third quarter of 2004, resulting from the decrease in net sales. SG&A expenses decreased $2.1 million in the Licensing segment in the third quarter of 2005 compared with the third quarter of 2004 primarily as a result of a favorable settlement related to a merchandise royalty sharing dispute. As a result of the decrease in licensing segment sales, SG&A increased to 39% of licensing net sales in the third quarter of 2005 compared with 24% in the third quarter of 2004. Toy segment SG&A expenses remained flat but increased as a percentage of sales from 16% in the third quarter of 2004 to 34% in the third quarter of 2005 as a result of the decline in Toy sales. Corporate overhead expenses decreased $2.0 million in the third quarter of 2005 compared with the third quarter of 2004, principally due to a decrease in salaries and in legal expenses. 21 Operating Income
Three Months ended September 30, ------------------------------------------------ 2005 2004 Amount Margin Amount Margin ------------ ------------ ---------- ----------- (dollars in millions) Licensing.............................. $ 20.0 60% $ 49.0 76% Publishing............................. 11.0 43% 9.4 42% Toys................................... 10.5 48% 11.8 24% Corporate Overhead..................... (6.1) N/A (8.1) N/A ------------- ----------- Total.................................. $ 35.4 44% $ 62.1 46% ============= ===========
Consolidated operating income decreased $26.7 million to $35.4 million in the third quarter of 2005, primarily due to the lower sales in the Licensing segment. As a percentage of sales, consolidated operating margins in the third quarter of 2005 were slightly below the third quarter of 2004 as a result of lower Licensing segment margins due to lower Licensing sales, offset by higher Toy segment margins due to the change in product mix. Operating margins of the Licensing segment decreased to 60% in the third quarter of 2005 from 76% in the comparable prior year quarter as a result of relatively flat overhead costs coupled with lower sales. The margin was further reduced due to the decrease in sales generated from the Joint Venture. Joint Venture revenues have no related royalty expense payable to studios, and therefore have higher margins than other License segment revenue streams, where the related royalty expense payable to studios is recorded within selling expense. Operating margins increased in the Toy segment to 48% in the third quarter of 2005 from 24% in the third quarter of 2004 as a result of an increase in higher margin royalty and service fee revenue from licensed toy sales associated with TBW and a decrease in revenue derived from lower margin direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release. Other The Company had net interest expense of $0.4 million in the third quarter of 2005, compared to net interest income of $0.6 million in the third quarter of 2004. This was the result of interest expense in 2005 related to the Film Facility of $0.9 million, offset by interest income. Interest income reflects amounts earned on the Company's cash equivalents and short-term investments. Income Taxes The Company's effective tax rate for the three-month period ended September 30, 2005 (31.9%) was lower than the statutory rate due primarily to recognition of additional tax benefit relating to state and local net operating losses, the effects of the consolidation of the Joint Venture, and Federally tax free investment returns offset by state and local taxes. The effective tax rate for the third quarter reflects a benefit of 4.5% from discrete items primarily related to the valuation of deferred tax assets for state and local net operating losses, which will not recur in future quarters. The Company is not responsible for the income taxes related to the minority share of the Joint Venture income, and as such, the minority share of the Joint Venture income is deducted in computing the Company's effective tax rate. The impact of this reduction to the Company's effective tax rate is greater in periods when the operating results of the Joint Venture are higher and lesser in periods when the operating results of the Joint Venture are lower. The Company completely utilized its Federal net operating loss carryforwards in 2004. The Company retains various state and local net operating loss carryforwards of approximately $308 million, which will expire in various jurisdictions in years 2005 through 2023. The Company is under examination by various state and local jurisdictions, the results of which are not expected to be material to the Company's financial position, results of operations or cash flows. 2 21 Nine-month period ended September 30, 2005 compared with the nine-month period - -------------------------------------------------------------------------------- ended September 30, 2004 - ------------------------ Net Sales Nine Months ended September 30, ------------------------ 2005 2004 Change ----------------------------------- (dollars in millions) Licensing................................... $148.3 $158.1 (6)% Publishing.................................. 69.1 63.9 8% Toys........................................ 56.0 191.0 (71)% ----------- ----------- Total....................................... $273.4 $413.0 (34)% =========== =========== The Company's consolidated net sales of $273.4 million for the nine-month period ended September 30, 2005 were $139.6 million lower than net sales in the comparable period of 2004, primarily due to decreased sales from the Toy segment. The overall decrease in Licensing segment sales ($9.8 million) was due to decreases in the Joint Venture and domestic licensing, which were only partially off-set by strength in international licensing. For the nine-month period ended September 30, 2005, the Joint Venture generated $20.4 million of sales compared with $40.0 million recorded by the Company for the period from April 1 2004 (the initial date the Joint Venture was consolidated) through September 30, 2004. This decrease was partially off-set by increases in international licensing ($7.8 million) and studio media licensing ($4.5 million). Sales from the Publishing segment increased $5.2 million to $69.1 million for the nine-month period ended September 30, 2005 primarily due to $4.3 million of higher sales of trade paperbacks and comic books into the direct market channel. This was partially due to an increase in the number of published comic book titles from 580 during the nine months ended September 30, 2004 to 605 for the nine months ended September 30, 2005. Sales from the Toy segment decreased $135.0 million to $56.0 million in the nine-month period ended September 30, 2005, primarily due to a $156.4 million decrease in the direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release. This decrease was partially offset by increases in royalty and service fee revenue derived from licensed toy sales associated with TBW. Cost of Revenues Nine Months ended September 30, ------------------------------------------------- 2005 2004 % of Net % of Net Amount Sales Amount Sales ---------- ------------ ------------ ------------ (dollars in millions) Licensing.................... $ -- N/A $ -- N/A% Publishing................... 30.2 44% 29.7 46% Toys......................... 7.3 13% 112.0 59% --------- ------------- Total........................ $37.5 14% $141.7 34% ========= ============= 23 Consolidated cost of revenues decreased $104.2 million to $37.5 million for the nine-month period ended September 30, 2005, primarily due to decreased production costs, resulting from lower direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release, as described above. Consequently, the Company's consolidated cost of revenues as a percentage of sales decreased to 14% for the nine-month period ended September 30, 2005, as compared to 34% in comparable period of 2004. Publishing cost of revenues as a percentage of sales decreased from 46% in the third quarter of 2004 to 44% in the third quarter of 2005 as a result of an increase in sales of trade paperbacks, which have lower creative production costs than comic books. The decrease in Toy cost of revenues from 59% of net sales in the nine-month period ended September 30, 2004 to 13% in the nine-month period ended September 30, 2005 reflects a change in product mix due to a decrease in production costs associated with decreased revenue derived from the direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release and an increase in royalty and service fee revenue from licensed toy sales associated with TBW, for which there are no production costs. Selling, General and Administrative Expenses Nine Months ended September 30, ------------------------------------------------- 2005 2004 % of Net % of Net Amount Sales Amount Sales ------------ ------------ ---------- ------------ (dollars in millions) Licensing.................... $ 60.4 41% $ 47.6 30% Publishing................... 11.1 16% 10.8 17% Toys......................... 18.0 32% 22.3 12% Corporate Overhead........... 18.1 N/A 16.4 N/A ------------- ----------- Total........................ $ 107.6 39% $ 97.1 24% ============= =========== Consolidated selling, general and administrative ("SG&A") expenses increased $10.5 million to $107.6 million for the nine-month period ended September 30, 2005, primarily due to the $10 million charge associated with the settlement of litigation with Stan Lee recorded in the first quarter of 2005 in the Licensing segment. Consolidated SG&A as a percentage of net sales increased to 39% for the nine-month period ended September 30, 2005 as compared to 24% in the comparable period of 2004 as a result of the decrease in consolidated net sales and the impact of the first-quarter 2005 Stan Lee settlement provision. Licensing segment SG&A expenses increased $12.8 million (27%) as a result of the $10 million charge associated with the Stan Lee settlement, higher international sales commissions and higher salaries. As a percentage of sales, licensing SG&A increased to 41% in the nine-month period ended September 30, 2005 from 30% in the comparable prior year period as a result of these cost increases combined with the decrease in licensing sales in 2005. Toy segment SG&A expenses increased as a percentage of sales from 12% in the nine-month period ended September 30, 2004 to 32% in the nine-month period ended September 30, 2005 as a result of the decline in Toy sales. Toy SG&A expenses decreased $4.3 million to $18.0 million for the nine-month period ended September 30, 2005 from $22.3 million for the nine-month period ended September 30, 2004 as a result of a decline in royalty fees of $5.5 million due to the reduction of direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release, which was partially offset by a $1.0 million increase to advertising expense. Corporate overhead expenses increased $1.7 million for the nine-month period ended September 30, 2005 principally due to increased legal expenses. 24 Operating Income Nine Months ended September 30, ------------------------------------------------ 2005 2004 Amount Margin Amount Margin ----------- ---------- ---------- ------------- (dollars in millions) Licensing...................... $ 88.0 59% $118.5 75% Publishing..................... 27.7 40% 25.7 40% Toys........................... 28.1 50% 55.3 29% Corporate Overhead............. (17.4) N/A (16.4) N/A ------------ ----------- Total.......................... $126.4 46% $183.1 44% ============ =========== Consolidated operating income decreased $56.7 million to $126.4 million for the nine-month period ended September 30, 2005, primarily due to the lower sales in the Licensing and Toy segments. As a percentage of sales, consolidated operating margins for the nine-month period ended September 30, 2005 were slightly higher than for the comparable period of 2004 as a result of lower Licensing segment margins due to lower Licensing sales, offset by higher Toy segment margins due to the change in product mix. Operating margins decreased in the Licensing segment from 75% for the nine-month period ended September 30, 2004 to 59% in the comparable period of 2005 as a result of lower licensing sales in 2005 and higher costs as a result of the Stan Lee settlement. The margin was further reduced due to the decrease in sales generated from the Joint Venture. Joint Venture revenues have no related royalty expense payable to studios, and therefore have higher margins than other License segment revenue streams, where the related royalty expense payable to studios is recorded within selling expense. Operating margins increased in the Toy segment to 50% for the nine-month period ended September 30, 2005 from 29% in the comparable period of 2004 as a result of an increase in higher margin royalty and service fee revenue from licensed toy sales associated with TBW and a decrease in revenue derived from lower margin direct sales of action figures and accessories based on characters associated with the July 2004 Spider-Man 2 theatrical release. Other The Company had net interest income of $2.2 million for the nine-month period ended September 30, 2005, compared to net interest expense of $18.3 million in the comparable period of 2004. This was the result of the redemption of the Company's 12% senior notes on June 15, 2004. Interest income reflects amounts earned on the Company's cash equivalents and short-term investments. Income Taxes The Company's effective tax rate for the nine-month period ended September 30, 2005 (36.7%) was higher than the Federal statutory rate due primarily to state and local taxes offset by the recognition of additional tax benefit relating to state and local net operating losses, the effects of the consolidation of the Joint Venture, and Federally tax-free investment returns. The Company is not responsible for the income taxes related to the minority share of the Joint Venture income, and as such, the minority share of the Joint Venture income is deducted in computing the Company's effective tax rate. The impact of this reduction to the Company's effective tax rate is greater in periods when the operating results of the Joint Venture are higher and lesser in periods when the operating results of the Joint Venture are lower. The Company completely utilized its Federal net operating loss carryforwards in 2004. The Company retains various state and local net operating loss carryforwards of approximately $308 million, which will expire in various jurisdictions in years 2005 through 2023. The Company is under examination by various state and local jurisdictions, the results of which are not expected to be material to the Company's financial position, results of operations or cash flows. 25 Liquidity and Capital Resources The Company's primary sources of liquidity are cash and cash equivalents, short-term investments, cash flows from operations, the Film Facility and the HSBC Credit Facility (defined below). The Company anticipates that its primary uses for liquidity will be to conduct its business and pursue its stock repurchase program. Net cash provided by operating activities decreased $65.2 million to $57.3 million for the nine-month period ended September 30, 2005, compared to $122.5 million for the comparable prior year period primarily due to the Company having fully utilized its net operating loss carryforwards in late 2004, resulting in the generation of current tax obligations. Income tax payments in 2005 totaled $67.3 million, compared with $21.7 million in the prior year. In addition, the Company had a $10.9 million increase in distributions to the Joint Venture partner. The Company had working capital of $58.2 million at September 30, 2005 compared with working capital of $142.2 million at December 31, 2004, a decline of $83.9 million. This decline is primarily the result of the Company using short-term investments and operating cash to finance its stock repurchase plan described below, which was partially offset by cash generated through operations. Net cash flows from investing activities for the nine-month period ended September 30, 2005 reflect the sale of short-term investments to finance the Company's common stock repurchase program described below. Net cash flows from investing activities for the nine-month period ended September 30, 2004 reflect the sale of short-term investments to repay long-term debt and finance the Company's common stock repurchase program described below. In July 2004, the Company began a $100 million common stock repurchase program, which was increased to $250 million on May 11, 2005. The Company completed its $250 million stock repurchase program on July 19, 2005, under which the Company repurchased a total of 13.5 million shares of its common stock, at an average purchase price of $18.48 per share. During 2005, the Company expended $191.9 million for the repurchase of common stock. These repurchases were financed through the sale of investments of approximately $100.1 million and cash generated from operations. As described above, MVL Film Finance LLC maintains a $525,000,000 credit facility for the purpose of producing theatrical motion pictures based on Marvel's characters. The Film Facility consists of $465 million in revolving senior bank credit and $60 million in credit referred to as mezzanine debt, which is subordinated to the senior bank debt. Both Standard & Poor's, a division of the McGraw-Hill Companies, Inc., and Moody's Investor Rating Service, Inc. have given the senior bank debt an investment grade rating. In addition, Ambac Assurance Corporation has insured repayment of the senior debt, raising its rating to AAA. The rate for the senior bank credit, including Ambac's fees, is LIBOR or the commercial paper rate, as applicable, plus 1.635%. The interest rate for the mezzanine debt is LIBOR plus 7.00%. The Company entered into an interest rate cap agreement in connection with the Film Facility whereby LIBOR is capped at 6.0% for outstanding debt under the Film Facility up to certain stipulated notional amounts which vary over the term of the Film Facility. Pursuant to the terms of the financing, the mezzanine credit will be drawn on first and will remain outstanding for the life of the senior bank facility. As of September 30, 2005, MVL Film Finance LLC had $24.8 million in outstanding mezzanine borrowings through the Film Facility. The borrowings were used primarily to finance transaction costs related to the development and closing of the facility. The Company must comply with a minimum tangible net worth covenant and various administrative covenants. In addition, conditions to the initial funding of the fifth film to be produced under the Film Facility, and each film thereafter, are the satisfaction of an interim asset test and foreign pre-sales test, as defined in the Film Facility. The Company is in compliance with its covenants under the Film Facility. During most of the third quarter, the Company maintained a credit facility with HSBC Bank USA, National Association ("HSBC") that provided for a $15 million revolving line of credit and up to $15 million in letters of credit. At the Company's election, effective as of the closing of the Film Facility, the Company and HSBC terminated this credit facility. 26 On November 9, 2005, the Company entered into an agreement for a credit facility with HSBC (the "HSBC Credit Facility") to provide for a $150 million revolving credit line (this amount decreases to $100 million on March 31, 2006) with a sublimit of $27 million for the issuance of letters of credit. Borrowings under the HSBC Credit Facility may be used by the Company for working capital and other general corporate purposes and for repurchases of the Company's common stock. As of November 9, 2005, $0.3 million of letters of credit were outstanding, and there were no borrowings, under the HSBC Credit Facility. The HSBC Credit Facility, which expires on October 31, 2007, contains customary event-of-default provisions and covenants regarding the Company's net worth, leverage ratio, and free cash flow. The HSBC Credit Facility is secured by a first priority perfected lien on (a) the Company's accounts receivable, (b) the Company's rights in its master toy license with TBW and in any successor license, and (c) all common stock of the Company repurchased after the facility's closing date. Borrowings under the facility would bear interest at HSBC's prime rate or, at the Company's choice, at LIBOR-plus-1.25% per annum. On November 9, 2005, the Company authorized a $250 million common stock repurchase program. Pursuant to the authorization, the Company may, at its option, purchase shares of its common stock from time to time in the open market or through privately negotiated transactions until such time as $250 million of the Company's shares have been repurchased under the program. The Company's largest stockholder and Chief Executive Officer, Isaac Perlmutter, has agreed not to sell any shares until the earlier of October 15, 2006 or the last day in which the repurchase program is in place. The Company believes that its cash and cash equivalents, short-term investments and cash flows from operations, the Film Facility, the HSBC Credit Facility and other sources of liquidity will be sufficient for the Company to conduct its business and pursue its stock repurchase program. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has foreign operations in Hong Kong, the United Kingdom and Japan. In the normal course of business, these operations are exposed to fluctuations in currency values. Management believes that the impact of currency fluctuations do not represent a significant risk. Interest rate changes generally do not effect the market value of the Company's debt under the Film Facility but do impact the amount of the Company's interest payments under the Film Facility and therefore, the Company's future earnings and cash flows, assuming other factors are held constant. On September 30, 2005, the Company had variable rate debt under the Film Facility of $24.8 million. On September 1, 2005, the Company entered into an interest rate cap agreement in connection with the Film Facility, to mitigate its exposure to increases in the LIBOR rate, as described in the Notes to Condensed Consolidated Financial Statements in Part I hereof. The interest rate cap settles on the 15th day (or the first business day thereafter) after the end of each calendar quarter in which it is in effect until its expiration on October 15, 2014. The fair value of this interest rate cap at September 30, 2005 is $3.4 million. The Company does not enter into derivative financial instruments for speculative purposes. Additional information relating to the Company's outstanding financial instruments is included in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 4. CONTROLS AND PROCEDURES The Company's management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Company's principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective. The Company has not identified any changes in its internal controls over financial reporting during the quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. 27 PART II. OTHER INFORMATION. -------------------------------- 28 ITEM 1. LEGAL PROCEEDINGS The information required by Part II, Item 1 is incorporated herein by reference to the information appearing under the caption "Legal Matters" in the Notes to Condensed Consolidated Financial Statements in Part I hereof. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Total number of Approximate dollar shares purchased value of shares Total number of as part of that may yet be shares Average price publicly announced purchased under purchased (a) paid per plans or programs the plans or Period share (b) programs - ------------------ ----------------- ------------------- ------------------------ -------------------- 2005 July............ 1,572,100 $ 20.76 1,572,100 August.......... 73,400 19.06 -- September....... -- -- -- ----------------- -------------------- Total........... 1,645,500 20.68 1,572,100 $--(c) ================= ====================
(a) This column's figures include 73,400 shares purchased by the Fleer/Skybox Plan. (b) This column represents the number of shares repurchased through the common stock repurchase program announced on July 12, 2004 and revised as announced on May 11, 2005, under which the Company was authorized to repurchase up to $250 million worth of its common stock through June, 30, 2006. (c) No further shares may be purchased under the repurchase program in effect during the quarter ended September 30, 2005. On November 9, 2005, the Company announced a new repurchase program under which $250 million may be used by the Company to repurchase shares of its common stock. 29 ITEM 6. EXHIBITS 3(i) Articles of Incorporation 10.1 Amended and Restated Studio Distribution Agreement dated as of August 31, 2005, by and between MVL Productions LLC and Paramount Pictures Corporation. Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission 10.2 Form of Performance-Based Phantom Stock Agreement under the Company's 2005 Stock Incentive Plan 10.3 Form of Performance-Based Award Letter under the Company's 2005 Cash Incentive Plan 10.4 Amendment to Employment Agreement Between Timothy E. Rothwell and the Company 10.5 Credit Agreement, dated as of November 9, 2005 among Marvel Entertainment, Inc. and HSBC Bank USA, National Association 10.6 Pledge and Security Agreement, dated as of November 9, 2005 by Marvel Entertainment, Inc. and Marvel Characters, Inc. in favor of HSBC Bank USA, National Association 10.7 Guaranty, dated as of November 9, 2005 by Marvel Characters, Inc. in favor of and for the benefit of HSBC Bank USA, National Association 10.8 Share Disposition Agreement, dated as of November 8, 2005 by and between Marvel Entertainment, Inc. and Isaac Perlmutter 31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act 31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act 32 Certification by Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) under the Exchange Act 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MARVEL ENTERTAINMENT, INC. (Registrant) Dated: November 9, 2005 By: /s/ Isaac Perlmutter ---------------------------- Isaac Perlmutter Chief Executive Officer Dated: November 9, 2005 By: /s/ Kenneth P. West ------------------------------- Kenneth P. West Chief Financial Officer 31 EX-3.(I) 2 ex3-i.htm

 

Exhibit 3(i)

 

 

CERTIFICATE OF OWNERSHIP AND MERGER

 

MERGING

 

MARVEL ENTERTAINMENT, INC.

(a Delaware corporation)

 

WITH AND INTO

 

MARVEL ENTERPRISES, INC.

(a Delaware corporation)

 

(Pursuant to Section 253 of the

General Corporation Law of the State of Delaware)

 

Marvel Enterprises, Inc., a Delaware corporation (the “Corporation”) does hereby certify:

 

FIRST: That the Corporation is incorporated pursuant to the General Corporation Law of the State of Delaware.

 

SECOND: That the Corporation owns all of the outstanding shares of each class of the outstanding stock of Marvel Entertainment, Inc., a Delaware corporation.

 

THIRD: That the Corporation, by action at a meeting of the Board of Directors duly called and held on August 30, 2005, determined to merge into itself, Marvel Entertainment, Inc. on the conditions set forth in the following resolutions:

 

NOW THEREFORE BE IT RESOLVED, that the Board of Directors deems it advisable and in the best interest of the Corporation and hereby approves the merger into itself of its wholly-owned subsidiary, Marvel Entertainment, Inc. and assumes all of such subsidiary’s liabilities and obligations, effective upon the filing of a certificate of ownership and merger embodying these resolutions with the Secretary of State of the State of Delaware; and be it further

 

RESOLVED, that any time prior to the filing of a certificate of ownership

 

 


 

and merger with the Secretary of State, the merger may be terminated by the Board of Directors of either constituent corporation; and be it further

 

RESOLVED, that pursuant to Section 253(b) of the Delaware General Corporation Law, the Board of Directors deems it advisable and in the best interest of the Corporation, and hereby approves, a change in the Corporation’s corporate name to “Marvel Entertainment, Inc.”, such change to become effective upon the effectiveness of the merger; and be it further

 

RESOLVED, the Corporation’s charter and bylaws prior to the merger shall be the charter and bylaws of the surviving corporation; and be it further

 

RESOLVED, that the CEO, General Counsel or any Vice President be and

is hereby authorized to make, execute and acknowledge a certificate of ownership and merger setting forth a copy of the resolution to merge said Marvel Entertainment, Inc. into this Corporation, to effect the name change above and to assume Marvel Entertainment Inc.’s liabilities and obligations and the date of adoption thereof and to file the same in the office of the Secretary of State of Delaware, and to do all acts and things whatsoever, whether within or without the State of Delaware, which may be in any way necessary or appropriate to effect said merger; and be it further

 

RESOLVED, that all actions heretofore taken by any officer of the Corporation in connection with or contemplated by the foregoing resolutions be, and they hereby are, approved, ratified and confirmed in all respects as actions on behalf of the Corporation.

 

FOURTH: Pursuant to Section 253(b) of the General Corporation Law of the State of Delaware, upon the effectiveness of the merger, the Corporation, as the surviving corporation in the merger, will change its corporate name to

 

 

“Marvel Entertainment, Inc.”.

 

FIFTH: By virtue of the merger and without any action on the part of the holder thereof, each outstanding share of common stock of the subsidiary shall be cancelled and no consideration shall be issued in respect thereof

 

[Remainder of page intentionally left blank]

 

 

 

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IN WITNESS WHEREOF, the Corporation has caused this Certificate of Ownership and Merger to be signed by an authorized officer this 16th day of September, 2005 and effective as of September 16, 2005.

 

MARVEL ENTERPRISES, INC.

 

 

By:

/s/ John Turitzin

 

 

Name: John Turitzin

Title: Executive Vice President & General
Counsel

 

 

 

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RESTATED CERTIFICATE OF INCORPORATION

OF

MARVEL ENTERPRISES, INC.

Marvel Enterprises, Inc., a corporation (the “Corporation”) organized and existing under the General Corporation Law of the State of Delaware (the “GCL”), does hereby certify as follows:

1.            The present name of the Corporation is Marvel Enterprises, Inc. The Corporation was originally incorporated under the name “Toy Biz Acquisition, Inc.,” and its original certificate of incorporation was filed with the office of the Secretary of State of the State of Delaware on March 18, 1993.

2.            This Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the GCL, after an annual meeting of stockholders called and held upon notice in accordance with Section 222 of the GCL and after a vote of stockholders thereat.

3.            This Restated Certificate of Incorporation restates and integrates and further amends the certificate of incorporation of the Corporation, as heretofore amended, supplemented, and/or restated (the “Certificate of Incorporation”).

4.            The text of the Certificate of Incorporation is hereby restated and integrated and further amended to read in its entirety as follows:

ARTICLE I

NAME

The name of the Corporation is Marvel Enterprises, Inc. (the “Corporation”).

ARTICLE II

REGISTERED OFFICE

The address of the registered office of the Corporation in the State of Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle, and the name of the registered agent of the Corporation at such address is The Prentice-Hall Corporation System, Inc.

 

 

 

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ARTICLE III

 

PURPOSES

The nature of the business or purposes of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the GCL.

ARTICLE IV

 

CAPITAL STRUCTURE

4.1          Authorized Capital Stock. The total number of shares of capital stock which the Corporation shall have authority to issue is 350,000,000 shares, consisting of two classes of capital stock:

(a)          250,000,000 shares of common stock, par value $.01 per share (the “Common Stock”); and

(b)          100,000,000 shares of preferred stock, par value $.01 per share (the “Preferred Stock”).

4.2          Designations, Preferences, etc. The designations, preferences, powers, and relative, participating, optional, and other rights and the qualifications, limitations, and restrictions thereof, of the capital stock of the Corporation shall be as set forth in this Certificate of Incorporation.

ARTICLE V

 

COMMON STOCK

5.1          Dividends. Subject to any preferential or other rights of the holders of outstanding shares of Preferred Stock, when, as, and if dividends are declared by the Corporation’s Board of Directors in accordance with the provisions of this Certificate of Incorporation on outstanding shares of Common Stock, whether payable in cash, in property, or in securities of the Corporation, the holders of shares of the Common Stock shall be entitled to share equally in and to receive all such dividends, in accordance with the number of shares of Common Stock held by each such holder.

5.2          Liquidation Rights. Upon any duly authorized voluntary or any involuntary liquidation, dissolution, or winding-up of the affairs of the Corporation, after payment in full or reasonable provision for payment in full of all claims and obligations of the Corporation, in accordance with Section 281 of the GCL, as the same now exists or may hereafter be amended, or with the provisions of any successor statute, shall have been made, and subject to any preferential or other rights of holders of outstanding shares of Preferred Stock, the holders of shares of Common Stock shall be entitled to share

 

 

 

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ratably, in accordance with the number of shares of Common Stock held by each such holder, in all remaining assets of the Corporation available for distribution among the holders of Common Stock, whether such assets are capital, surplus, or earnings. For the purposes of this Paragraph 5.2, neither the consolidation or merger of the Corporation with or into any other entity or entities, nor the sale, lease, exchange or transfer by the Corporation of all or any part of its assets, nor the reduction of the number of authorized shares of the capital stock or any class or series thereof of the Corporation, shall be deemed to be a voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation as those terms are used in this Paragraph 5.2.

5.3          Voting Rights. At each annual or special meeting 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 holder’s name on the stock transfer records of the Corporation. The holders of shares of Common Stock shall not have cumulative voting rights.

5.4          No Preemptive or Subscription Rights. No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.

ARTICLE VI

 

PREFERRED STOCK

Shares of Preferred Stock may be issued from time to time in one or more series only as may be determined and authorized in accordance with the provisions of this Certificate of Incorporation. Subject to the provisions of this Certificate of Incorporation, the Board of Directors is expressly authorized, to the fullest extent permitted by law, to fix and alter the powers, designations, preferences, and relative, optional, participating, and other rights, and the qualifications, limitations, and restrictions thereof, granted to or imposed upon any wholly unissued series of Preferred Stock and, unless otherwise provided in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any such series, to increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.

Authorized and unissued shares of any series of Preferred Stock may be issued with such designations, powers, voting rights, preferences, and relative, participating, optional and other rights, if any, and such qualifications, limitations and restrictions thereof, if any, only as may be authorized in accordance with the provisions of this Certificate of Incorporation prior to the issuance of any shares of such series of Preferred Stock, including, but not limited to: (i) the distinctive designation of each series and the number of shares that will constitute such series; (ii) the voting rights, if any, of shares of such series and whether the shares of any such series having voting

 

 

 

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rights shall have multiple votes per share; (iii) the dividends payable on the shares of such series, any restriction, limitation, or condition upon the payment of such dividends, whether dividends shall be cumulative, and the dates on which dividends are payable; (iv) the prices at which, and the terms and conditions on which, the shares of such series may be redeemed, if such shares are redeemable; (v) the purchase or sinking fund provisions, if any, for the purchase or redemption of shares of such series; (vi) any preferential amount payable upon shares of such series in the event of the liquidation, dissolution, or winding-up of the Corporation, or any distribution of its assets; and (vii) the prices or rates of conversion or exchange at which, and the terms and conditions on which, the shares of such series are convertible or exchangeable, if such shares are convertible or exchangeable.

Any and all shares of Preferred Stock issued and for which full consideration has been paid or delivered shall be deemed fully paid and non-assessable shares, and the holder thereof shall not be liable for any further payment thereon.

6.1          Class A Junior Participating Preferred Stock; Designation and Amount. The shares of such series shall be designated as Class A Junior Participating Preferred Stock, $.01 par value per share (the “Class A Preferred Stock”), and the number of shares constituting the Class A Preferred Stock shall be two million five hundred thousand (2,500,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Class A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Class A Preferred Stock.

 

6.2

Dividends and Distributions

(a)          Subject to the prior and superior rights of the holders of any shares of any class or series of stock of this Corporation ranking prior and superior to the Class A Preferred Stock with respect to dividends, the holders of shares of Class A Preferred Stock, in preference to the holders of Common Stock and of any other stock ranking junior to the Class A Preferred Stock, shall be entitled to receive, when, as and if authorized by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the fifteenth day of January, April, July and October of each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Class A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $0.10 or (b) an amount, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares

 

 

 

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of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Class A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Class A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(b)          The Corporation shall declare a dividend or distribution on the Class A Preferred Stock as provided in paragraph (a) of this Section 6.2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.10 per share on the Class A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.

(c)          Dividends shall begin to accrue and be cumulative on outstanding shares of Class A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Class A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Class A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Class A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.

(d)          In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares of stock

 

 

 

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of the Corporation or otherwise, is permitted under the DGCL, amounts that would be needed, if the Corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of the Class A Preferred Stock shall not be added to the Corporation’s total liabilities.

6.3          Voting Rights. The holders of shares of Class A Preferred Stock shall have the following voting rights:

(a)          Subject to the provision for adjustment hereinafter set forth, each share of Class A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the holders of Common Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Class A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(b)          Except as otherwise provided herein, or in any Certificate of Designation, Preferences and Rights creating a series of Preferred Stock or any similar stock, the holders of shares of Class A Preferred Stock and the holders of shares of Common Stock and any other shares of stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

(c)          Except as set forth herein, or as otherwise provided by law, holders of Class A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

 

6.4

Certain Restrictions.

(a)          Whenever quarterly dividends or other dividends or distributions payable on the Class A Preferred Stock as provided in Section 6.2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Class A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

 

(i)

declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends

 

 

 

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or upon liquidation, dissolution or winding up) to the Class A Preferred Stock;

 

(ii)

declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Class A Preferred Stock, except dividends paid ratably on the Class A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

 

(iii)

redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Class A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (both as to dividends and upon dissolution, liquidation or winding up) to the Class A Preferred Stock; or

 

(iv)

redeem or purchase or otherwise acquire for consideration any shares of Class A Preferred Stock, or any shares of stock ranking on a parity with the Class A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 6.4, purchase or otherwise acquire such shares at such time and in such manner.

6.5          Reacquired Shares. Any shares of Class A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth

 

 

 

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herein or in any Certificate of Designation, Preferences and Rights creating a series of Preferred Stock or any similar stock or as otherwise required by law.

 

6.6

Liquidation, Dissolution or Winding Up.

(a)          Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Class A Preferred Stock unless, prior thereto, the holders of shares of Class A Preferred Stock shall have received an amount per share (the “Class A Liquidation Preference”) equal to $10 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment provided that the holders of shares of Class A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Class A Preferred Stock, except distributions made ratably on the Class A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Class A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event.

(b)          In the event, however, that there are not sufficient assets available to permit payment in full of the Class A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Class A Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Class A Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences.

(c)          Neither the merger or consolidation of the Corporation into or with another corporation nor the merger or consolidation of any other corporation into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6.6.

 

 

 

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6.7          Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Class A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Class A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

6.8          No Redemption. The shares of Class A Preferred Stock shall not be redeemable by the Company.

6.9          Rank. The Class A Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up, junior to all series of any other class of the Corporation’s Preferred Stock, except to the extent that any such other series specifically provides that it shall rank on a parity with or junior to the Class A Preferred Stock.

6.10       Amendment. At any time any shares of Class A Preferred Stock are outstanding, this Certificate of Incorporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Class A Preferred Stock, as set forth herein, so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Class A Preferred Stock, voting separately as a single class.

6.11       Fractional Shares. Class A Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Class A Preferred Stock.

 

 

 

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ARTICLE VII

 

MANAGEMENT OF THE CORPORATION

7.1          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.

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.

7.2          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.

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

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

7.5          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.

7.6          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 stockholders.

 

 

 

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7.7          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 7.7, special meetings may not be called by any other person or persons. 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.

7.8          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.

 

ARTICLE VIII

 

AMENDMENTS

The Corporation reserves the right to amend or repeal any provisions contained in this Certificate of Incorporation from time to time and at any time in the manner now or hereafter prescribed in this Certificate of Incorporation or the By-Laws or required by the laws of the State of Delaware, and all rights herein conferred upon stockholders are granted subject to such reservation.

ARTICLE IX

 

LIMITATION OF LIABILITY OF DIRECTORS

No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, that the foregoing clause shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the GCL, or (iv) for any transaction from which the director derived an improper personal benefit. For purposes of the prior sentence, the term “damages” shall, to the extent permitted by law, include without limitation, any judgment, fine, amount paid in settlement, penalty, punitive damages, excise or other tax assessed with respect to an employee benefit plan, or expense of any nature (including, without limitation, counsel fees and disbursements). Each person who serves as a director of the Corporation while this Article IX is in effect shall be deemed to be doing so in reliance on the provisions of this Article IX. Any

 

 

 

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repeal or modification of this Article IX shall not adversely affect any right or protection of a director existing prior to such repeal or modification. The provisions of this Article IX are cumulative and shall be in addition to and independent of any and all other limitations on or eliminations of the liabilities of directors of the Corporation, as such, whether such limitations or eliminations arise under or are created by any law, rule, regulation, by-law, agreement, vote of stockholders or directors, or otherwise.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Incorporation to be duly executed and acknowledged, this 12th day of May, 2004.

MARVEL ENTERPRISES, INC.

 

 

By:

/s/ Allen S. Lipson

 

 

Name: Allen S. Lipson

Title: President and Chief
          Executive Officer

 

 

 

 

 

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 EX-10 3 ex10-1.htm EX. 10.1

 

Exhibit 10.1

 

 

CONFIDENTIAL

 

AMENDED AND RESTATED STUDIO DISTRIBUTON AGREEMENT

MVL PRODUCTIONS LLC AND PARAMOUNT PICTURES CORPORATION

 

This agreement (the “Agreement”) dated as of August 31, 2005 is entered by and between MVL Productions LLC (“Marvel”) and Paramount Pictures Corporation (“Paramount”) amends, restates and supersedes that certain term sheet (the “Term Sheet”) dated as of March 25, 2005 between Marvel Studios, Inc. (“MSI”) and Paramount with respect to the marketing and distribution of theatrical motion pictures based on Marvel Characters (as defined below). Capitalized terms not defined in the body of this Agreement shall have the meaning set forth in the glossary attached hereto as Exhibit DEF and incorporated herein by reference.

1.             Financing: MVL Film Finance LLC (“MVL”) is in the process of securing production financing that will allow MVL to finance the cost of production of a slate of theatrical motion pictures based on Marvel Characters and Marvel Titles pursuant to the terms of a Credit and Security Agreement (the “Financing”). This Agreement is conditioned on MVL closing the Financing on or before September 5, 2005 (the “Outside Financing Date”).

2.

Pictures:

A.            Paramount shall distribute the first two (2) theatrical motion pictures produced by Marvel using the Financing (each a “Committed Picture”). In addition, in the event the Committed Pictures are based on Marvel Characters or Marvel Titles other than “Captain America” or “Nick Fury” then, subject to the terms of Sections 19 and 20, and provided Marvel has availability under its Financing to finance such pictures and provided further that Marvel has not notified Paramount of a termination or cessation of its Financing, Paramount shall also have the right to distribute the first theatrical motion picture produced by Marvel based on each of “Captain America” and “Nick Fury” (the “Additional Committed Pictures”). In addition, Marvel, at its election shall have the right to require Paramount to distribute, on the terms set forth herein, up to an additional eight (8) pictures (some of which may be sequels) (e.g., assuming Captain America and Nick Fury are the Committed Pictures, then eight (8) additional pictures, or assuming Captain America and Nick Fury are not the Committed Pictures, then six (6) additional pictures) each based on a Marvel Character(s) or Marvel Title(s) produced using the Financing (the “Optional Pictures” and together with the Committed Pictures and the Additional Committed Pictures, the “Pictures”). Provided Paramount is not in breach hereunder, Paramount shall have the right to distribute any sequels to Committed Pictures and Additional Committed Pictures if the applicable Committed Picture or Additional Committed Picture has generated worldwide box office gross (as reported by the Daily Variety) of at least two (2) times its Final Audited Budget for such Picture (each, a “Qualifying Sequel”). As used herein, the term “Picture” shall include Qualifying Sequels, if and as applicable.

B.            In the event Marvel elects to have Paramount distribute an Optional Picture, which election shall be made in Marvel’s sole discretion, Marvel shall provide written notice

 

 

 

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thereof no later than the date on which Marvel receives its initial production advance under the Financing with respect to such Optional Picture, which date shall be no later than the commencement of principal photography (the “Distribution Notice”).

C.            Other than with respect to Qualifying Sequels, Marvel’s right to require Paramount to distribute Optional Pictures shall commence on the date Marvel notifies Paramount that it has closed the Financing which date shall be no later than the Outside Financing Date and conclude on the eighth anniversary thereof.

3.

Territory:

A.            Paramount shall have the obligation on the terms set forth in this Agreement, to distribute each Picture throughout the world other than in the Reserved Territories (the “Territory”). For purpose hereof, the “Reserved Territories” are the countries of Australia and New Zealand, Japan, Germany, German speaking Switzerland and Austria, France and French speaking Belgium, and Spain.

B.            Marvel agrees that Paramount shall have a right of first negotiation to purchase all of the Reserved Territories on a Picture by Picture basis or in a group as part of an output deal as elected by Marvel. Paramount and Marvel shall exclusively negotiate with one another upon notice to Paramount from Marvel for a period of fifteen (15) business days (the “Exclusive Negotiation Period”). Marvel shall deliver notice of the commencement of the Exclusive Negotiation Period no later than eight (8) weeks prior to the commencement of pre-production with respect to each Picture, except to the extent that (i) Marvel has already entered into an output deal with respect to such Picture, and (ii) Paramount did not acquire such rights during its Exclusive Negotiation Period with respect to such Picture as part of the negotiation of the output deal covering the Picture. If at the end of the Exclusive Negotiation Period Paramount and Marvel have not entered into a written agreement with respect to Paramount’s purchase of the Reserved Territories for the applicable Picture(s), Marvel shall be free to negotiate and enter into an agreement with any other party.

4.             Distribution Rights: Paramount shall have the following rights with respect to each Committed Picture, each Additional Committed Picture, if applicable, each Qualifying Sequel and each Optional Picture for which Marvel has delivered notice to Paramount pursuant to Section 2.B, in the Territory (collectively the “Paramount Distribution Rights”) during the Distribution Term:

 

A.

The exclusive Theatrical Distribution Rights;

 

 

B.

The exclusive Non-Theatrical Distribution Rights;

C.            The exclusive Home Video Distribution Rights which for purposes hereof shall also include the electronic delivery of Pictures at a time(s) determined by the end-user which is intended by the distributor to entitle the end-user to permanently retain the Picture (e.g., download to own); provided Paramount has been delivering its own films of similar budget, genre and stature as the Picture in the same manner, and provided further that if Paramount has

 

 

 

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been doing so for less than a substantial portion of its own pictures for less than one (1) year then it must first obtain Marvel’s prior written approval;

D.            Subject to the Television Distribution Rights reserved by Marvel as set forth in Section 5, the exclusive Television Distribution Rights, including by means of Pay Television Distribution (the “Paramount Television Distribution Rights”);

 

E.

Alternate Linear Exhibition Rights; and

F.             Internet Rights; provided, however, that each party agrees not to exercise or license its respective right to distribute the Picture over the Internet unless and until there exist safeguards that (i) restrict the territorial access and/or downloading by viewers to only those persons located in each parties’ respective territory, (ii) reasonably prevent unauthorized copying of the Picture, and (iii) prevent such exhibition from infringing on the respective parties’ distribution rights. In addition to the foregoing, Paramount shall not distribute a Picture over the Internet unless it is doing so for its own films of similar budget, genre and stature as the Picture.

Paramount acknowledges that it is not acquiring any rights in or to the Marvel Characters or Marvel Titles. Paramount is only acquiring the Paramount Distribution Rights for Committed Pictures, Qualifying Sequels (if applicable, if produced, and if Marvel has not lost pursuant to a foreclosure event under the Financing the underlying motion picture rights to the character(s) on which such Qualifying Sequel is based) and Additional Committed Pictures, if applicable, as and when produced by Marvel through the Financing, and Optional Pictures, if presented to Paramount for distribution.

5.

Reserved Rights: The following rights with respect to each Picture:

 

i.

All rights of any kind and nature now known or hereafter created or conceived in the Reserved Territories;

 

ii.

Free Television Distribution Rights in the United States and Canada, its territories and possessions. Marvel agrees that its exercise of its Free Television Distribution rights shall be subject to customary holdbacks in favor of Paramount’s granted television rights and Paramount’s exercise of its licensed rights is subject to customary holdbacks in favor of the Reserved Rights.

B.            All rights not expressly granted to Paramount, including without limitation, the following rights: merchandising, soundtrack, videogame, publishing (other than free excerpts for marketing purposes), music publishing, production of derivative works and other audio-visual works based on the Marvel Characters and/or Marvel Titles, including without limitation, television and direct-to-video motion pictures, and all rights in and to the Marvel Characters, Marvel Titles and the Marvel Universe. The foregoing shall not restrict Paramount from using the soundtrack to the Picture in timed synchronization to the visual images of the Picture in connection with the exercise by Paramount of its Paramount Distribution Rights provided such use is not separately charged to an end-user.

 

 

 

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6.             Distribution Term: Paramount shall have the right to exercise its Paramount Distribution Rights with respect to each Picture for an initial period of 15 years commencing on the initial Theatrical Exhibition of such Picture (the “Initial Distribution Term”); subject to extension for United States pay television only, until the expiration of the third window under Paramount’s U.S. Pay Television output deal, if such third window has not been completed as of the expiration of the Initial Distribution Term provided that each U.S. Pay Television Exhibition window shall be no longer than five (5) years; subject to extension with respect to all rights other than U.S. Pay Television for an additional two (2) years from the end of the Initial Distribution Term if at the end of the Initial Distribution Term Paramount has not recouped its Distribution Costs and Expenses with respect to such Picture (the “Distribution Term”).

7.             Commercial Tie-Ins/Promotions: During the Co-Promotion/Commercial Tie-In Period, Paramount shall have the right to conduct and control all Co-Promotion/Commercial Tie-Ins with Marvel having a right of meaningful consultation with respect thereto, subject to the early termination of such period as provided below in this Section. Notwithstanding the foregoing, Marvel shall have the right to control all Co-Promotion/Commercial Tie-Ins in the Reserved Territories. Paramount’s Co-Promotion/Commercial Tie-Ins for a Picture shall be no less than those for a major studio theatrical release of similar genre, budget and stature. Notwithstanding Paramount’s rights set forth in the first sentence of this Section, Marvel shall have the right to approve each product for each Co-Promotion/Commercial Tie-In (e.g., Paramount can enter a Co-Promotion/Commercial Tie-In agreement with Burger King but Marvel shall approve any product or premium give away or program) in the United States, Canada, United Kingdom, Italy, China, Mexico, and Korea. The Co-Promotion/Commercial Tie-In Rights granted to Paramount shall be subject to the following: Paramount shall have three (3) months following the later of (a) the date on which Marvel notifies Paramount of its obligation to distribute a Picture, or (b) the date a previously designated Picture commences official pre-production and the lead character has been cast (e.g., the actor playing Captain America has been cast) to secure a Co-Promotion/Commercial Tie-In agreement in the following categories in each country in the Territory: Quick Service Restaurants, Beverage, Packaged Foods (e.g., Salty Snacks/Cereals/Cookies), Electronics (e.g., Samsung, Sony, Panasonic, Batteries), Automobile (e.g., Ford, Chrysler, GM, Toyota), Hotels, Candy, and Financial (e.g., Visa, American Express, Master-Card), and five (5) months for all other categories. The immediately preceding sentence and the immediately succeeding sentence shall apply to the United States, Canada, the United Kingdom, Italy, Mexico, China, and Korea. If by the end of the applicable period Paramount has not secured a Co-Promotion/Commercial Tie-In agreement for a specific category then Marvel shall thereafter have the exclusive right to secure a Co-Promotion/Commercial Tie-In for such category in the applicable country of the Territory; provided however if Paramount is in active negotiations for a category at the end of the applicable period, then Paramount shall have the right to continue such active negotiation for an additional three (3) weeks keeping Marvel fully informed of the progress and status of such negotiation. Notwithstanding the foregoing, Marvel shall have the right to conduct Marvel Family Co-Promotion/Commercial Tie-Ins at any time. Marvel shall have the right, at all times, to conduct Co-Promotions/Commercial Tie-Ins which do not relate to the Picture. For the avoidance of doubt, Paramount’s Co-Promotions/Commercial Tie-In Rights shall not include Sponsorship Rights in any manner or respect. Paramount agrees that no Co-Promotion/Commercial Tie-In agreement shall contain

 

 

 

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any term restricting Marvel’s exercise of any of its Reserved Rights, including without limitation, its merchandising rights.

8.

Distribution Fee:

A.            Paramount shall be entitled to receive [redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission] distribution fee (the “Distribution Fee”) throughout the Territory on Paramount’s Distribution Rights (other than its Co-Promotion/Commercial Tie-In Rights which shall not be reduced by any distribution fee). No sub-distributor fees shall be charged except as provided in Section 8.C below (for example, from Marvel’s perspective UIP’s theatrical distribution fee shall be [redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission] without any additional Paramount Distribution Fee charged on top). Paramount’s distribution through UIP (or through a joint venture of which Paramount is a party or by Paramount itself either directly or through a new entity) is considered “direct distribution” by Paramount (rather than sub-distribution).

B.            No territory pre-sales, flat deals or similar deals shall be allowed in territories where Paramount directly distributes its own films of similar budget and stature without the prior written approval of Marvel.

C.            Paramount/UIP may sub-distribute the Pictures only in territories where it does not distribute its own films directly and sub-distributes its own films through a non-affiliated sub-distributor. Such sub-distribution shall be on the same terms as Paramount/UIP receives for its own films of similar budget and stature. Amounts received from such sub-distribution shall be included in gross receipts. Paramount/UIP currently sub-distributes in those countries and on those platforms (e.g., Theatrical, Television, DVD) next to each country set forth on Schedule 8.C.

D.            Notwithstanding the foregoing, and Section 3.A, the Pictures shall not be distributed through UIP in the event Paramount does not distribute its own films of similar budget and stature through UIP without Marvel’s prior written approval.

9.

Print and Advertising Costs and Expenses:

A.            Paramount will pay for all Distribution Costs and Expenses for each Picture. For purposes hereof, “Distribution Costs and Expenses” shall be defined as set forth in Exhibit DEF attached hereto; provided however such Distribution Costs and Expenses shall not include or accrue interest, shall be net of discounts, credits, refunds, allowances and rebates, shall not include internal charges or overhead. Paramount’s use of third parties in connection with the creative advertising and marketing shall be generally consistent with its own films of similar genre and budget to the applicable Picture.

B.            Paramount shall spend an amount on Distribution Costs and Expenses for each Picture equal [redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission] to that for its own major theatrical releases of similar budget, genre and stature (the “P&A Requirement”); provided that with respect to the Pictures, Paramount shall

 

 

 

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spend no less than the following actual and direct out of pocket amounts: (which sums shall be increased or decreased based on the MPAA domestic average percentage increase or decrease for each year from 2004 to the year in which such Picture is domestically Theatrically Exhibited):

[chart redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission]

C.            Paramount’s agreements with exhibitors for the exhibition of the Pictures shall be on the same terms as Paramount receives for its own films of similar budget, genre and stature; provided however following the wide release of such Picture in each territory, Paramount’s agreements with exhibitors shall take into consideration the performance of the Picture. Paramount’s agreements with UIP and with Viacom, Paramount’s sister companies, subsidiaries and/or affiliates of any of the foregoing with respect to Distribution Costs and Expenses shall be negotiated at arms length.

10.          Release Commitment: The initial theatrical release in the United States, Canada and the rest of the Territory for each Picture shall be a “wide release” (as such term is customarily understood in the entertainment industry with respect to major studio releases for pictures of similar budget, genre and stature as such term is applied on a territory by territory basis) unless Marvel approves otherwise. In the context of the foregoing, Marvel shall be meaningfully consulted on the release pattern and distribution pattern. Notwithstanding the foregoing, if UIP uses its commercial best efforts to secure a “wide release” in the Territory (other than the United States and Canada) and it is unsuccessful in securing the number of theatres for the Picture equal to the number of theatres UIP would secure for a Paramount film of similar budget, genre and stature, then Paramount shall not be in breach of this Agreement. If UIP ceases to directly distribute in a Major UIP Territory (as defined below) in which it currently self-distributes and Paramount does not thereafter directly distribute in such territory itself (or through a joint venture in which Paramount is a party), then, unless Paramount is otherwise able to secure a third party distribution arrangement for the applicable Territory that enables Paramount to account to Marvel on the same “source accounting” basis as it did previously, Marvel shall have the right to secure distribution for its Pictures in such territory (it being understood that this provision shall only apply to films which have not yet had an initial theatrical release as of the occurrence of the applicable “cessation” event).

11.          Release Dates: For each Picture delivered by Marvel with a Final Bonded Budget of at least $60 Million, the release windows for the initial domestic theatrical wide release shall be:

A.            annually on or between the first weekend of May and July 4th weekend (for purpose of this term sheet “weekend” shall be defined as Wednesday-Friday) (the “Summer Release Window”), and

B.            annually on or between the third weekend of October and the last weekend of November (“Fall Release Window” and together with the Summer Release Window the “Release Windows”).

 

 

 

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C.            For Pictures with a Final Bonded Budget of less than $60 Million only the Fall Release Window shall be guaranteed but Marvel and Paramount may agree on a mutually acceptable alternate release date outside of the Fall Release Window.

D.            Paramount, with respect to the United States and Canada, and UIP, with respect to the rest of the Territory in which UIP directly distributes other than the Reserved Territories (the UIP Territory”), shall not schedule a release of a Picture within two (2) weeks before or after the scheduled release of MSI picture to be released by a different studio. If another MSI film is scheduled within such two (2) week period after Paramount/UIP, respectively, schedules its release date then Paramount/UIP and Marvel shall together in good faith determine whether to move the scheduled release date; provided however in the event of a deadlock, Paramount’s decision shall prevail. At the request of Paramount, Marvel will in good faith consider agreeing to release one Picture each year on or between the last weekend of July and the second weekend of August. Alternate releases dates shall be subject to mutual approval. Provided Marvel notifies Paramount of the scheduled delivery date (the “Scheduled Delivery Date”) for a Picture no later than the commencement of principal photography of such Picture, Paramount shall, provided that the mandatory delivery items for such Picture are delivered in accordance with Paramount’s customary delivery schedule (which schedule shall on a Picture by Picture basis be subject to modifications that are mutually agreed to by the parties through good faith negotiation) no later than the Scheduled Delivery Date, release the applicable delivered Picture in the Release Window immediately following the Scheduled Delivery Date or in that Release Window if the Scheduled Delivery Date occurs during a Release Window unless Marvel approves otherwise.

E.             With respect to pictures (other than the Pictures) that Paramount (or any of its subsidiaries) theatrically releases in the U.S. and Canada, the initial theatrical release date (Wednesday - Friday) of any such picture that opens on more than 1250 screens in the U.S. shall not coincide with the initial U.S. theatrical release date of any Picture. With respect to pictures (other than the Pictures) that UIP theatrically releases on behalf of Paramount in any particular foreign territory in the Territory, the initial theatrical release date of any such picture in such foreign territory shall not coincide with the initial theatrical release date of any Picture in such foreign territory.

F.             Paramount shall not release a Picture outside of the United States and Canada (excluding the Reserved Territories, the “Paramount Foreign Territory”) until such Picture has been theatrically released in the United States unless otherwise agreed by Marvel. Marvel shall not release a Picture in its Reserved Distribution Territories prior to the domestic theatrical release of such Picture unless Paramount approves otherwise. A simultaneous United States release and the release in the Reserved Distribution Territories is acceptable to Paramount and a simultaneous United States release and a release in the Paramount Foreign Territory is acceptable to Marvel The initial theatrical release in each country in the Paramount Foreign Territory relative to the initial domestic release shall be consistent with Paramount’s practice for releasing its own films of similar budget, genre and stature.

G.            Paramount shall not be obligated to release more than 2 Pictures during each calendar year and no more than 1 Picture during each Release Window.

 

 

 

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H.            With respect to animated Pictures with a budget of $70 Million (adjusted in good faith as animation costs decrease over time) or less, the only release date window commitment shall be the Fall Release Window.

12.          Paymaster/Priority of Payments: Paramount shall provide all paymaster services (as such term is commonly understood in the motion picture industry) in connection with each Picture distributed by Paramount in a manner consistent with such services for Paramount’s own films except as otherwise expressly set forth in this Agreement. On a Picture by Picture basis any and all revenues (e.g., 100% of home video revenues) generated either directly or indirectly from the exploitation of the Paramount Distribution Rights in the Territory during the Distribution Term (for purposes hereof, “Gross Receipts”) shall be distributed in the following order of priority;

 

A.

Residuals;

B.            Participations, capped at [redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission] of Gross Receipts;

C.            The Distribution Fee calculated on and paid out of 100% of the Gross Receipts generated from the exploitation by Paramount of the Paramount Distribution Rights in the Territory; then

D.            Paramount’s actual out of pocket and verifiable Distribution Costs and Expenses paid out of Gross Receipts generated from the exploitation by Paramount of the Paramount Distribution Rights in the Territory; then

 

E.

To the following Marvel designated account:

Account Number 10-879177

ABA 021001088

Attn: Collateral Agent, HSBC Bank USA, National Association

HSBC Bank USA, National Association, 452 Fifth Avenue,

New York, New York 10018.

Recoupment by Paramount of its Distribution Costs and Expenses and Distribution Fee shall not be crossed among Pictures. Paramount agrees to serve as paymaster for the payment of Residuals and Participations arising out of Gross Receipts from the Reserved Territories and United States and Canadian Free Television; provided Marvel advises Paramount in advance of the terms of all Participations and Marvel agrees to pay to Paramount an amount equal to such Residuals and Participations as and when such payment obligations come due arising out of such Reserved Rights. Paramount’s obligation to make payments to third parties in its capacity as paymaster pursuant to the immediately preceding sentence is subject to: (a) Paramount’s timely receipt from Marvel of all cost and revenue information relating to Marvel’s exploitation of its Reserved Rights that is reasonably necessary for Paramount to make the applicable computations; and (b) Paramount’s prior receipt from Marvel of all amounts required to be paid by Paramount to the applicable third parties (in Paramount’s aforesaid paymaster role).

13.

Home Video/DVD:

 

 

 

 

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A.            The total of Cassette manufacturing costs and Home Video Distribution costs and expenses shall be consistent with amounts spent by Paramount for its own films of similar budget, genre and stature calculated on a sold-through basis; provided, however, Paramount shall be required to obtain Marvel’s prior written approval if such costs and expenses are in excess of [redacted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission] (exclusive of Residuals) of Home Video Gross Receipts (e.g., amount sold-through). Paramount’s Distribution Fee on Home Video’s shall be calculated on amounts sold through and not sold-in. No distribution fee shall be charged on returns. Paramount agrees that the number of Cassette units of the Picture sold-in shall be consistent with sell-in numbers for Paramount’s own films of similar budget, genre and stature.

B.            The Home Video of each Picture shall be simultaneously released on a sell-through and rental basis unless otherwise approved in advance in writing by Marvel.

C.            Marvel shall approve all bonus content placed on each DVD. The cost of such bonus content shall be included in the production budget and marketing budget for each Picture in a manner consistent with entertainment industry practice based on the type of content in question. Paramount shall place bonus content on each DVD of a Picture similar to the type of bonus content that Paramount places on DVDs of its own pictures of similar budget, genre and stature. Any bonus content that is placed on a DVD and that is paid for by Marvel outside of the production budget shall be recoupable by Marvel after Paramount has recouped its Distribution Costs and Expenses.

D.            Marvel shall have approval over all trailers placed on each Home Video; provided, however, Marvel agrees to approve a reasonable number of trailers to appear before the feature presentation on the Home Video; provided, further, that Marvel shall not be required to approve trailers for films featuring characters from Marvel’s comic book competitors or a comic book character or inappropriate for the target audience. On each Home Video, Marvel shall have the right to require the inclusion of trailers for its own Pictures that are distributed through Paramount.

14.          Windows: The exercise by Paramount of its Paramount Distribution Rights in the United States and Canada shall occur as follows (the “Subsequent Windows”):

A.            Home Video/DVD release must occur no later than 7 months following the initial theatrical release of the applicable Picture in the United States and Canada.

B.            Marvel agrees that its exercise of its free television rights shall be subject to Paramount’s customary holdbacks in effect at the time so as to allow for Paramount’s exercise of its Paramount Television Distribution Rights and Paramount agrees that its exercise of its Paramount Television Distribution Rights shall be subject to customary holdbacks and restrictions so as to allow for Marvel’s exercise of its Free Television Distribution Rights in the United States and Canada and in the Reserved Territories. The parties agree to advise each other of any holdbacks or restrictions no later than five (5) days following Paramount’s receipt of the Distribution Notice with respect to Optional Pictures and Qualifying Sequels and the start of principal photography for Committed Pictures.

 

 

 

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C.            Distribution window specifics beyond those set forth above shall be negotiated in good faith by the parties on a case by case basis. Marvel and Paramount shall cooperate in the exercise of Marvel’s distribution rights in the Reserved Territories and Paramount’s exercise of its distribution rights in the Territory.

15.

Credit: In the Territory in connection with each Picture, the credits shall be as follows:

 

A.

On Screen: On all positive prints of the Picture:

 

 

i.

Logo Credit: Paramount’s animated logo credit shall appear in first position followed immediately by Marvel’s animated logo credit.

 

ii.

Presentation Credit: Paramount and Marvel shall receive a joint presentation credit to read as follows: “Paramount Pictures and Marvel Productions Present” (or a similar form thereto) with all aspects of such shared presentation credit as between Paramount and Marvel being equal.

 

B.

TV/Print/Radio:

 

i.

Logo Credit: Marvel’s “bug” logo (and/or animated logo if television and if Paramount’s animated logo appears) shall appear in all paid advertisements (Paramount lower in the lower right corner, Marvel in the lower left) whenever Paramount’s logo appears. The size, boldness and physical appearance shall be equal to that of Paramount’s. Marvel’s name shall be mentioned in radio and television ads whenever Paramount’s name is mentioned with Marvel’s name mentioned immediately before or after Paramount’s name.

 

ii.

Presentation Credit: Marvel’s presentation credit shall appear in the billing block portion of all paid advertisements in the form set forth in 15.A.ii. The size and prominence of such credit shall be the greater of 75% of the billing block title of the Picture or the size and prominence of any other credit in the billing block.

C.            Third Party Credits: Paramount agrees to honor the credit terms contained in agreements entered into between Marvel and any third party with respect to each Picture; provided such terms are not inconsistent with Sections 15.A and 15B and are consistent with applicable guild requirements.

16.

Approvals:

A.            Production: Marvel shall have approval over all production (i.e., budget, location, etc.) and creative matters (director, writer, cast, screenplay, etc). Marvel shall consult with Paramount on material creative matters (i.e., principal cast, writer, director).

 

B.

Marketing Plan:

 

 

 

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i.

Marketing Plan: The marketing plan for each Picture shall be approximately consistent in terms of the percentage allocation of dollars (1) across forms of media, and (2) between pre-opening weekend, opening weekend, and the first week following opening weekend with the marketing plans for Paramount’s own films of similar budget, genre and stature.

 

 

ii.

Marvel and Paramount shall have mutual approval over the marketing plan with respect to the United States and Canada. Marvel and UIP shall have mutual approval over the marketing plan with respect to the following UIP Territories (to the extent such territories remain directly distributed by Paramount): the United Kingdom, Italy, China (which is not currently directly distributed by UIP and, therefore, Marvel’s mutual approval right pursuant to this subparagraph 16.(B)(ii) will not apply to China unless and until UIP/Paramount begins to directly distribute in China), Mexico, Korea and if applicable the Reserved Territories (the “Major UIP Territories”). In the event of a deadlock, the parties shall use their commercial best efforts to reach a mutually acceptable alternative. At such time as Paramount (or UIP as applicable) makes its Initial Marketing Commitment, Paramount’s (or UIP as applicable) decision in the event of a deadlock over the marketing plan shall prevail. For purpose hereof, “Initial Marketing Commitment” means the point in time when Paramount (or UIP as applicable) commits to spend or spends at least 10% of the total marketing plan budget amount.

 

iii.

Changes to the Approved Marketing Plan: Any material change to the approved marketing plan at any time (whether before or after the Initial Marketing Commitment) shall require the prior approval of Marvel provided however in the event of a deadlock Paramount’s decision shall prevail.

 

C.

Marketing Materials:

 

i.

All marketing materials shall contain appropriate trademark and copyright notices of Marvel in a form supplied by Marvel.

 

ii.

Marvel and Paramount shall have mutual approval over all material creative marketing aspects for each Picture including without limitation all images, one sheets, billboards, trailers, newspaper ads, and television ads for the United States and Canada (the “Creative Marketing Elements”). The same approvals shall apply for the Major UIP Territories. In the event of a deadlock, the parties shall use their commercial best efforts to reach a mutually acceptable alternative; provided however if no mutually acceptable alternative is reached then Marvel’s decision shall prevail.

 

iii.

DVD Box: Marvel shall have the right to approve the Home Video/DVD box.

 

 

 

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D.            Reasonable Exercise of Approval Rights. Provided Marvel has had reasonable period of time to review those items over which it has approval and Paramount has delivered in a timely manner all of the materials necessary for Marvel to exercise its approval rights, then Marvel agrees to exercise its approval rights as set forth in this Agreement in a manner that will not frustrate the exercise by Paramount of the Paramount Distribution Rights.

17.          Picture Requirements: Notwithstanding Marvel’s approval over all production matters, Marvel agrees as follows:

A.            Each Picture shall have a rating no more restrictive than PG-13;

B.            Each Picture shall have a running time excluding credits of no less than 86 minutes and no more than 150 minutes;

 

C.

Each Picture shall be either live action or animated;

D.            Each Picture shall be a first class motion picture that is produced for initial Theatrical Exhibition;

 

E.

Each Picture shall be filmed in the English language;

18.

Audit/Accounting:

 

A.            Cash Remittance Cycle/Statements. Commencing on the initial theatrical release of each Picture, with respect to such Picture, monthly for the first 3 years, and quarterly thereafter with statements and payments made no later than 45 days after the end of the then applicable period. Each statement shall contain sufficient detail so as to allow Marvel to determine all of the gross receipts by source and distribution costs and expenses by category. Such statements shall include at least the following information with respect to each Picture: cumulative gross receipts to date broken out by source (i.e., theatrical, home video, UIP based on territory, etc.); gross receipts received during the applicable period broken out be source; cumulative residuals paid to date; residuals paid during the period; cumulative third party participations paid to date; third party participations paid during the period; cumulative Distribution Fees paid to date broken out by source (i.e., distribution fee based on gross from theatrical vs. gross from home video); Distribution Fees paid during the period (with same breakout); cumulative distribution costs and expenses paid to date broken out by major category (i.e., basics, prints, manufacturing); distribution costs and expenses for the period (same breakout); distribution costs and expenses accrued but not paid to date broken out by category; and distribution costs and expenses accrued but not paid during the period broken out by category.

B.            Cash Remittance Obligations. Viacom shall enter into a performance guarantee with respect to Paramount’s cash remittance obligations and Paramount’s handling of cash generated from the exploitation of the Pictures residing in the Paramount and UIP co-mingled account. The terms of the foregoing guarantee shall be as reflected in that certain guaranty entered into by and among Viacom, MVL, and Marvel dated as of September 1, 2005. At such time (if ever) as Viacom shall cease to have its shares traded on a national exchange and be the

 

 

 

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corporate parent of Paramount, Paramount’s new publicly listed corporate parent will re-issue the guarantee in its own name (and, upon such issuance, the previously issued Viacom guarantee will be of no further force or effect). The corporate guarantee shall continue for nine (9) years from the date of closing.

C.            Accounting. Accounting shall be cash-based for gross receipts. With respect to home video returns and rebates, if Paramount reasonably and in good faith anticipates returns and rebates, then Paramount may establish appropriate reserves therefore; provided the amount of such reserves are consistent in amount with Paramount’s pictures of similar budget, genre and stature. Such reserves shall not be treated as gross receipts until liquidated which shall in no event occur later than 6 months after such reserve has been established provided there has been no proceeding, dispute or other claim of which Paramount has notified Marvel is pending (or Paramount believes in good faith will arise) protesting or disputing any home video return or rebate or any account related to such item has been collected. The parties acknowledge that distribution statements from Paramount shall not be based on GAAP accounting.

D.            Audit Rights: Paramount and UIP shall maintain accurate and complete books and records with respect to each Picture (the “Records”) at Paramount and UIP’s various offices (both in the United States and abroad) where generated and customarily maintained, which Records shall be made available to Marvel as part of any audit conducted by Marvel or on behalf of Marvel. Marvel shall have the right to audit the Records during normal business hours one (1) time during each twelve (12) month period during the distribution term. The audit shall commence on a regularly scheduled date to be determined by Marvel. The audit shall be conducted by an independent third party selected by Marvel.

E.             Withholding: The parties acknowledge that, in certain foreign territories, Paramount/UIP will be required to withhold and pay over a remittance tax to the local taxing authority in such territory on the net revenues derived from the Pictures in such territories (“Remittance Tax Payments”) that are ultimately remitted to the U.S., and that, accordingly, any such Remittance Tax Payments will be deducted as Distribution Costs and Expenses from the gross receipts that Paramount reports to Marvel with respect to the applicable Picture(s). If for any reason, Viacom (or Paramount’s successor corporate parent if Viacom ceases to be Paramount’s corporate parent) or Paramount/UIP receives a rebate or refund from the local taxing authority of a Remittance Tax Payment in connection with a Picture, or in connection with the Picture as one of a number of films distributed by Paramount/UIP, Paramount will credit the same (or the allocable portion if numerous films) against Distribution Costs and Expenses previously deducted. Further, Viacom (or Paramount’s successor corporate parent if Viacom ceases to be Paramount’s corporate parent) will provide an annual “certification” as and to the extent (if any) to which Viacom (or Paramount’s successor corporate parent if Viacom ceases to be Paramount’s corporate parent) is able to actually utilize foreign tax credits for the Remittance Tax Payments against its U.S. federal income tax liability. Within 30 days following the filing of its U.S. federal income tax return or foreign return if applicable, Viacom (or Paramount’s successor corporate parent, if applicable) will issue an annual “certification” in a form reasonably acceptable to Marvel indicating whether and to what extent it was able to utilize such foreign tax credits. Thereafter, Paramount would reflect such utilization in its accounting to Marvel via a credit against the deductions from gross receipts previously taken for the applicable Remittance Tax Payments, in the applicable accounting period following issuance of such

 

 

 

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“certification”. In the event that the I.R.S. subsequently disallows the claiming of any such foreign tax credits, Paramount reserves the right to reinstate the deduction against gross receipts. Paramount and Marvel will discuss in good faith how to apply any foreign tax credits for Remittance Tax Payments, if any, actually utilized by UIP in connection with the Pictures.

F.             Ultimate Statements: Paramount shall provide Marvel with Paramount’s ultimate projections for each Picture as follows: (a) together with the accounting statement for the applicable Picture that covers the first monthly accounting period; (b) together with the accounting statement for the applicable Picture that covers the first monthly accounting period following the initial domestic home video release of the applicable Picture (the “Second Report”); (c) together with the accounting statement for the applicable Picture that covers the monthly accounting period which is six (6) months after the monthly accounting period covered by the statement accompanying the Second Report (the “Third Report”); (d) together with the accounting statements for the applicable Picture that cover, respectively, the twenty-fourth and thirty-sixth monthly accounting period(s); and (e) thereafter, together with the accounting statements for the applicable Pictures covering the fourth, eighth, twelfth, sixteenth and twentieth quarterly accounting period(s). Such ultimate statements shall not be binding and shall contain appropriate disclaimers and limitations in favor of Paramount. Marvel shall protect the confidentiality of such ultimate reports and shall treat such reports in the same manner as Marvel treats its own confidential information.

19.

Termination:

Marvel may terminate this agreement as follows:

A.            Except as otherwise set forth below, upon the occurrence of any one of the following events by Paramount or UIP as applicable (each an “Event of Breach”), Marvel shall have the right to terminate this agreement unless otherwise waived by Marvel in writing: (1) the failure to release a delivered Picture within the Release Window for which that Picture was Delivered; (2) the failure to spend the appropriate minimum Distribution Costs and Expenses with respect to a Picture; provided however a short-fall of 10% or less shall not be deemed an Event of Default; (3) Paramount or UIP’s release of a Picture in the Reserved Territories; (4) Paramount’s release of a Picture outside of the Release Windows or in violation of the Subsequent Windows set forth in Section 14 hereof, (5) a breach of the simultaneous release date restrictions set forth in Section 11.E; (6) Paramount or UIP’s infringement on any of the Reserved Rights; (7) a breach of the two (2) week scheduling restriction set forth in Section 11.D; (8) Paramount or UIP’s failure to honor Marvel’s material approval and consultation rights as set forth herein; provided however Marvel shall provide Paramount or UIP as applicable with notice of such default and the opportunity to cure such breach within 5 days after receipt thereof; (9) the repeated failure to pay to Marvel Gross Receipts due Marvel; and (10) a breach of Section 10.

 

B.

Upon written notice to Paramount of a termination or cessation of the Financing.

20.          Effect of Termination: If the agreement is terminated as result of Section 19.A or B, Paramount’s only continuing right shall be to continue to distribute those Pictures that Paramount has initially theatrically released prior to the date of termination. If on the termination date Paramount has incurred any actual and direct out of pocket costs or expenses in connection with a Picture that has not been released, then Marvel may at its election reimburse

 

 

 

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Paramount for such amounts or elect to have Paramount distribute such Picture which election shall not be deemed a waiver of any prior breach.

21.          Office/Attendance: Paramount shall provide a production/marketing office on the lot commencing on the greenlight of the first Picture and continuing at all times that either (a) Marvel is in pre-production, production or post-production of a Paramount designated Picture, or (b) Paramount is distributing a Picture through 120 days following the initial domestic Home Video release. Such production/marketing office may be shut-down if neither (a) nor (b) are satisfied and may be reopened when and while satisfied. Marvel personnel shall have the right to attend all material marketing meetings and teleconferences relating to each Picture.

22.

Indemnification:

A.            By Marvel. Marvel shall forever, defend, indemnify and hold harmless Paramount, and its parents, subsidiaries, divisions, affiliates, successors, assigns, and licensees from and against all claims, actions, causes of action, losses, liability, actual out of pocket costs, expenses, damages, judgments, and settlements, including reasonable outside attorneys’ fees and court costs (collectively “Losses”), which may be suffered, made, or incurred by such parties arising out of or in connection with any breach of any representations, warranties, undertakings, or agreement of any nature whatsoever made or entered into by Marvel in connection with this Agreement and the Pictures produced by Marvel pursuant to this Agreement, which claims do not result from any breach or alleged breach by Paramount of any of its representations, warranties, undertakings or agreements of any nature whatsoever made or entered into in connection with this Agreement.

B.            By Paramount. Paramount shall forever defend, indemnify and hold harmless Marvel and its parents, subsidiaries, divisions, affiliates, successors, assigns, and licensees from and against all Losses, which may be suffered, made, or incurred by such parties arising out of or in connection with any breach of any representations, warranties, undertakings, or agreement of any nature whatsoever made or entered into by Paramount in connection with this Agreement and Paramount’s exercise of its rights granted to Paramount pursuant to this Agreement, which claims do not result from any breach or alleged breach by Marvel of any of its representations, warranties, undertakings or agreements of any nature whatsoever made or entered into in connection with this Agreement.

23.

Representations and Warranties.

A.            Of Marvel. Marvel hereby represents and warrants to Paramount that (i) it has all rights necessary to allow Paramount to exploit the Paramount Distribution Rights under this Agreement, (ii) it has the full right, power and authority to enter into this Agreement; (iii) the Picture as delivered to Paramount will not infringe on any third party rights; (iv) the Picture will not violate any applicable laws and/or regulations; (v) there is no and at the time of delivery of the Picture shall be no pending or to the best of Marvel’s knowledge threatened litigation or claims against the Picture; and (vi) Marvel has caused the production company which produced the Picture to obtain or shall cause it to obtain by the Delivery Date customary errors and omissions insurance reasonably satisfactory to Paramount for the Picture with only those exclusions that are customary for Paramount’s own films of similar budget, genre and stature and

 

 

 

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with customary deductibles, limits of liability and term consistent with Paramount’s own films of similar budget, genre and stature and naming Paramount as an additional insured thereon.

B.            Of Paramount. Paramount represents and warrants to Marvel that (i) it has the full right, power and authority to enter into and perform this Agreement; (ii) the Agreement when signed will be a valid and binding obligation of Paramount enforceable in accordance with its terms; (iii) the marketing and other materials created by or for Paramount will not infringe on or violate any third party rights; (iv) the distribution of the Picture and the manner in which Paramount distributes and exploits its Paramount Distribution Rights will not violate any applicable laws and/or regulations; (v) there is no and at the time of delivery of the Picture shall be no pending or to the best of Paramount’s knowledge threatened litigation or claims against Paramount that would prevent Paramount from exercising its Paramount Distribution Rights; (vi) Paramount shall have secured all necessary permits and licenses necessary for Paramount to carry out its obligations set forth in this Agreement, including without limitation the exercise by Paramount of the Paramount Distribution Rights; and (vi) Paramount will obtain prior to the initial theatrical distribution of the Picture customary insurance relating to the distribution of the Picture and the exercise by Paramount of the Paramount Distribution Rights reasonably satisfactory to Marvel and naming Marvel as an additional insured thereon.

24.

Intentionally Omitted.

25.

Miscellaneous:

 

A.            Assignment. Marvel may assign this Agreement and/or its obligations and/or its rights under this Agreement, in whole or in part, to any direct or indirect subsidiary of MEI and the right to assign to any party the payment of any sums due Marvel, subject to Paramount’s customary notice provisions which shall be negotiated in good faith. Further, no consent shall be required in connection with the assignment of this Agreement as a result of a change in control (stock sale or sale of all or substantially all of assets) of MEI or to any successor to all or substantially all of the business of Marvel or any subsidiary whether by merger, stock sale or sale of assets. This Agreement shall inure to the benefit of Marvel and Marvel’s successors and assigns. Except as expressly permitted herein and/or as pre-approved in writing by Marvel, Paramount may not assign its obligations and/or rights under this Agreement whatsoever, any such purported assignment (including any assignment by operation of law or change of control) or other disposition by Paramount to be null and void. Notwithstanding the foregoing, no consent shall be required in connection with the assignment of this Agreement as a result of a change in control (stock sale or sale of all or substantially all assets) of Viacom or a corporate reorganization including a separation of the operating subsidiaries of Viacom into one or more publicly traded entities.

B.            Press Release. The parties hereby agree that no terms and conditions of this Agreement will be released to the press or publicly disclosed except as required by law. All public announcements, press releases, and/or advertisements pertaining to this Agreement or any of the matters contained herein shall require the advance written approval of each of the parties hereto except as may be required by the Securities Exchange Act of 1934 or the listing requirements of the exchange on which each of Marvel and Viacom or Paramount’s publicly listed direct or indirect corporate parent if other than Viacom, have their shares of common stock

 

 

 

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publicly traded provided that the party required to make such disclosure shall to the extent reasonably possible provide advance notice the other of such intended disclosure.

C.            Counterparts. This Agreement may be executed (including, without limitation, by facsimile signature) in one or more counterparts, with the same effect as if the parties had signed the same document. Each counterpart so executed shall be deemed to be an original, and all such counterparts shall be construed together and shall constitute one agreement.

D.            Notices. Any notice, request, demand or other communication provided hereunder to be given (a) shall be in writing; (b) shall be delivered (i) by Federal Express, DHL or other internationally recognized courier service, or (ii) by facsimile transmission; and (c) shall be conclusively deemed to have been delivered, received or given (i) three (3) business days after its dispatch by Federal Express, DHL or other internationally recognized courier service, or (ii) upon sender’s receipt of confirmation from the sender’s facsimile machine if sent by facsimile. If a notice or other document is sent simultaneously by both courier and facsimile transmission, such document shall be deemed delivered or given upon sender’s receipt of confirmation from the sender’s facsimile machine. However, if the day or time of the sender’s receipt of confirmation from the sender’s facsimile machine is not during the normal business hours of a regular business day, then such notice shall be conclusively deemed to have been received during the next regular business day. The addresses for notices to any of the parties hereto (until notice of a change thereof is served in writing to the other party) shall be as follows:

If to Marvel:

 

 

 

MVL Productions LLC
9242 Beverly Blvd, Suite 350
Beverly Hills, CA 90210
Attention: President
Tel: 310-550-3100
Fax: 310-285-9825

 

 

With a copy, given in the manner prescribed above, to:

 

 

 

Marvel Enterprises, Inc.
417 Fifth Avenue
New York, NY 10016
Attention: General Counsel
Tel: 212-576-4004
Fax: 212-576-4005

 

 

 

And

 

 

Liner Yankelevitz Sunshine & Regenstreif LLP
1100 Glendon Ave., 14th Floor
Los Angeles, California 90024-3503
Attention: Joshua B. Grode, Esq.
Tel: 310-500-3500

 

 

 

 

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Fax: 310-500-3501

 

 

 

If to Paramount:

 

 

 

Paramount Picture Corporation
5555 Melrose Avenue
Hollywood, California 90038
Attention: Karen Magid, Esq.
Tel: 323-956-4502
Fax: 323-862-8619

 

 

With a copy, given in the manner prescribed above to:

 

 

Paramount Picture Corporation
5555 Melrose Avenue
Hollywood, California 90038
Attention: President of Worldwide Marketing and Distribution
Tel: 323-956-5060
Fax: 323-862-2220

 

 

E.             Final Agreement. This Agreement shall be the final agreement between the parties and supersedes all prior oral and/or written agreements between the parties concerning the subject matter contained herein and there are no representations between the parties except as expressly set forth herein.

F.             Governing Law/Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of State of New York, Country of the United States of America excluding (to the greatest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the state of New York. Any and all disputes, claims, or controversies arising out of or relating to this Agreement shall be submitted to the Judicial Arbitration and Mediation Service (“JAMS”) or its successor, for mediation, and if the matter is not then resolved after fifteen (15) business days through mediation, then it shall be submitted to JAMS, or its successor, for final and binding arbitration. The mediation and, if applicable, the subsequent binding arbitration will take place in New York, New York (unless the parties mutually agree to an alternative venue) before a single experienced arbitrator with at least twenty (20) years of experience in the motion picture business who is licensed to practice law in New York and selected in accordance with the then current arbitration rules and procedures for disputes governing arbitrations administered by JAMS. If no qualified arbitrator can be found then the parties agree that a retired judge acceptable to both parties may arbitrate any dispute. The mediator and arbitrator shall be two (2) separate individuals. The prevailing party in any arbitration award, or the non-dismissing party in the event of a voluntary dismissal by the party instituting the action, shall be entitled to the full amount of all reasonable expenses, including all arbitration fees and actual outside attorneys’ fees paid or incurred in good faith.

IN WITNESS WHEREOF, each party has caused this Agreement to be executed by duly authorized representative as of the date first written above.

 

 

 

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MVL Productions LLC

 

By: /s/ John Turitzin

Name: John Turitzin

 

Title: Executive Vice President

 

Paramount Pictures Corporation

By: /s/Alan B. Heppel

Name: Alan B. Heppel

Title: Senior Vice President

 

 

 

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Exhibit DEF

 

Definitions

“Advertising and Marketing Rights” means with respect to each completed Picture the right to market, advertise and promote each completed Picture by any means now known or hereafter devised including without limitation on television, radio, print, trailers, and one-sheets.

“Alternate Linear Exhibition” means all other forms of linear exhibition of films whether now known or hereafter devised; provided, (1) such forms do not conflict with any of Reserved Rights (as defined in Section 5 of the Agreement) (e.g., exhibiting the film in a video game may interfere with Marvel’s videogame rights); (2) Paramount is distributing its own films for similar budget, genre and stature through such new form of exhibition and has been doing so for at least one (1) year; and (3) if such new form of exhibition (as distinguished from a new form of television or new format of video exhibition that falls within an existing window for that form of exhibition) results in a change in the order of release of the Picture (e.g., theatrical motion picture exhibition is now second in terms of time to such new form) that Marvel approves of such new form in writing in advance.

“Cassette” means a copy of the completed Picture in the form of a cassette, cartridge, videogram, video disc, DVD, tape, or other similar device now known or hereafter devised and designed to be used in conjunction with a reproduction apparatus which causes a motion picture to be visible on the screen of a television receiver, television monitor or comparable device now known or hereafter devised for individual personal use.

“Co-Promotion/Commercial Tie-In” means any advertisement or other promotional item or arrangement, which (a) is intended to and does promote both a Picture and the Marvel Character or Character Title on which it is based and one or more other products or services (other products or services shall be referred to herein as “Tie-in Partners”); and (b) contains prominent reference to each applicable Picture as opposed to relating only to the Marvel Character or Character Title.

“Co-Promotion Commercial Tie-In Period” means with respect to each Picture the period commencing nine (9) months prior to the initial U.S. domestic theatrical release of the Picture unless earlier terminated in accordance with Section 7 of the Agreement and continuing until six (6) months following the initial U.S. Home Video Distribution the Picture unless otherwise extended in writing by written agreement between the parties.

“Co-Promotion/Commercial Tie-In Rights” means the right to conduct Co- Promotions/Commercial Tie-Ins.

“Final Audited Budget” means the sum of all fees, costs, expenses and other charges incurred in connection with the production and delivery of a Picture as reviewed or audited by a third party and as reflected on a final statement delivered to Marvel. Such Final Audited Budget shall be provided to PPC at PPC’s request in the event of a dispute between the parties regarding whether PPC has met the requirements for a Qualifying Sequel.

 

 

 

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“Final Bonded Budget” means the total of all amounts that the completion guarantor agrees to bond in connection with the production of a Picture at the time such Budget is provided to PPC at the commencement of principal photography.

“Free Television Distribution” means, with respect to any completed Picture, the lease or license to one or more Persons of the right to engage in the Free Television Exhibition of such completed Picture and/or to grant licenses to other Persons to engage in the Free Television Exhibition and/or subdistribution of Free Television Exhibition of such completed Picture.

“Free Television Distribution Rights” means the right to conduct Free Television Distribution.

“Free Television Exhibition” means Television Exhibition without any fee being charged to the viewer for the privilege of unimpaired reception of such exhibition. For purposes of this definition, any government imposed fees or taxes applicable to the use of television receivers generally or a regular periodic access, carriage or equipment fee (but not any optional premium subscription charge or fee paid with respect to pay television exhibition) paid by a subscriber to a cable television transmission service or other transmission service or agency for the privilege of unimpaired reception shall not be deemed a fee charged to the viewer.

“Home Video Distribution” means, with respect to a completed Picture, in addition to Section 4.C, the lease or license of such completed Picture to one or more Persons with the right to engage in the manufacture, distribution, rental and/or sale of Cassettes of such completed Picture to one or more Persons for Home Video Exhibition of such completed Picture and/or to engage in the further lease or license of such completed Picture to other Persons with the right to engage in the manufacture, distribution, rental and/or sale of Cassettes of such completed Picture for Home Video Exhibition of such completed Picture.

“Home Video Distribution Rights” means the right to conduct Home Video Distribution.

“Home Video Exhibition” means, with respect to a completed Picture, the non-public exhibition of such completed Picture by means of a Cassette for individual personal non-public viewing at the place of origin of such exhibition.

“Internet Rights” means with respect to a completed Picture, subject to Section 4.F, the right to cause the exhibition of the Picture over an interconnected network of computers for personal viewing on a computer or other device connected thereto.

“Marvel Character” means each of Ant-Man, Captain America, Nick Fury, Shang-Chi, Black Panther, Hawkeye, Cloak, Dagger, Dr. Strange, and/or such other characters as may be designated by Marvel from time to time.

“Marvel Family Co-Promotion/Commercial Tie-In” means a co-promotion/commercial tie-in in which more than two (2) Marvel characters (of which one may be a Marvel Character) appear in a co-promotion/commercial tie-in provided no one character appears more prominently than another.

 

 

 

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“Marvel Title” means each of The Avengers and Power Pack, and/or such other titles as may be designated by Marvel thereto from time to time.

“Non-Theatrical Distribution” means, with respect to a completed Picture, the lease or license of such completed Picture to one or more Persons with the right to engage in the Non-Theatrical Exhibition of such completed Picture and/or to grant licenses to other Persons to engage in the Non-Theatrical Exhibition of such completed Picture subject to and in accordance with the terms of this Agreement.

“Non-Theatrical Distribution Rights” means the right to conduct Non-Theatrical Distribution.

“Non-Theatrical Exhibition” means, with respect to a completed Picture, the exhibition of such completed Picture by any means in any manner (i) on airplanes, trains, ships and other common carriers, (ii) in schools, colleges and other educational institutions, libraries, governmental agencies, business and service organizations and clubs, churches and other religious oriented groups, museums, and film societies (including transmission of the exhibition by closed circuit within the immediate area of the origin of such exhibition), and (iii) in permanent or temporary military installations, shut-in institutions, prisons, retirement centers, offshore drilling rigs, logging camps, and remote forestry and construction camps (including transmission of the exhibition by closed circuit within the immediate area of the origin of such exhibition).

“Open to the General Public” means, in the case of a completed Picture, being exhibited as a wide release (as defined below) in walk-in and/or drive-in theaters and open for at least one week to the general public on a regularly scheduled basis where a fee is charged for admission to view such completed Picture (excluding previews, premieres, charitable screenings, test-market screenings, screenings for Academy Award consideration or qualification, and other similar special exhibitions of such completed Picture).

“Participations” means amounts payable to any Person (including affiliates or employees of Marvel or any affiliate thereof serving as producer of such Picture), whether as a fixed sum (the payment of which is conditioned upon the attainment of a specified level of receipts or profits of a completed Picture) or as a percentage of the receipts (however denominated) of a completed Picture remaining after giving effect to specified exclusions and deductions, if any.

“Pay Television Distribution” means, with respect to a completed Picture, the lease or license of such completed Picture in accordance with the terms of this Agreement to one or more Persons with the right to engage in the Pay Television Exhibition of such completed Picture and/or to grant licenses to other Persons to engage in the Pay Television Exhibition and/or subdistribution of Pay Television Exhibition of such completed Picture.

“Pay Television Distribution Rights” means the right to conduct Pay Television Distribution.

“Pay Television Exhibition” means Television Exhibition which is available on the basis of the payment of a premium, subscription charge or fee (as distinguished from an access, carriage or equipment fee) for the privilege of unimpaired reception of a transmission for viewing in a private residence or in a hotel, motel, hospital or other living accommodation or other non-public area, whether (i) such transmission is on a pay-per- view, pay-per-show, pay-per-channel or pay-

 

 

 

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per-time period basis, or (ii) such premium, subscription charge or fee is charged to the operator of a hotel, motel, hospital or other living accommodation.

“Residuals” means all amounts payable with respect to obligations under applicable collective bargaining agreements by reason of or as a condition to any exhibition of a completed Picture, or any part thereof, from time to time, or any use or reuse thereof for any purpose or in any media whatsoever.

“Sponsorship Rights” means a promotional arrangement between Marvel (or a third party which has been authorized by Marvel) to conduct a live event and a company, which desires to associate its products or its brand with such live event. For clarity, the forgoing shall not include any live event undertaken to solely promote the Picture.

“Television Distribution” means, with respect to a completed Picture, to engage in the Television Exhibition of such completed Picture and/or to grant licenses to other Persons, subject to and in accordance with the terms hereof, to engage in the Television Exhibition or subdistribution of Television Exhibition of such completed Picture.

“Television Distribution Rights” means the right to conduct Television Distribution.

“Television Exhibition” means, with respect to a completed Picture, the transmission by any means now known or hereafter devised (including over-the-air, cable, wire, fiber, master antennae, satellite, microwave, closed circuit, laser, multi-point distribution services or direct broadcast systems) which transmission is received, directly or indirectly by retransmission or otherwise, impaired or unimpaired, for viewing such completed Picture on the screen of a television receiver or comparable device now known or hereafter devised (including high definition television), other than Home Video Exhibition, Theatrical Exhibition or Internet.

“Theatrical Distribution” or “Theatrically Distributed” means, with respect to a completed Picture, to engage in Theatrical Exhibition of such completed Picture and/or to grant licenses to other Persons pursuant to the terms hereof to engage in the Theatrical Exhibition of such completed Picture.

“Theatrical Distribution Rights” means the right to conduct Theatrical Distribution.

“Theatrical Exhibition” or “Theatrically Exhibited” means, with respect to a completed Picture, the exhibition of such completed Picture by any process now known or hereafter devised in walk-in or drive-in theaters Open to the General Public. Internet is not part of Theatrical Exhibition.

 

 

 

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EXHIBIT “RESID”

Payments of “Third Party Participations” that PPC pays pursuant to Paragraph 12.B of the Agreement and “Residuals” that PPC pays pursuant to Paragraph l2.A of the Agreement shall be paid when “earned” or “incurred.” For purposes of the Exhibit “RESID”, “Earned” shall mean Third Party Participation amounts that PPC is contractually obligated to pay to third party participants as a result of the calculation of revenues and expenses for the Picture recognized, or events occurring (e.g., box office bonuses) during the Accounting Period in question and Residual amounts that PPC is contractually obligated to pay pursuant to collective bargaining agreements with all applicable guilds as a result of the calculation of revenues and expenses recognized during the Accounting Period in question. For purposes of the Exhibit “RESID”, “Incurred” shall mean amounts resulting from transactions or events directly relating to the Picture during the Accounting Period in question that PPC is obligated to pay to third parties for goods or services directly related to the Picture which PPC or its designee has received. For the avoidance of doubt, no deduction on account of an item earned or incurred shall be later deducted a second time as a result of the payment of such item.

 

 

 

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EXHIBIT A

The following costs (the “Distribution Costs and Expenses”, as referenced in that certain Agreement by and between Paramount Pictures Corporation (“PPC”) and MVL Productions LLC (“Marvel”) dated as of March 25, 2005 as amended on August —, 2005 (the “Agreement”) shall apply with respect to each of the Pictures pursuant to the Agreement, and attached to this Exhibit A is Exhibit HE, which more fully sets forth the Distribution Costs and Expenses in connection with the exploitation of the Pictures on Home Entertainment media; provided however, notwithstanding the definitions set forth below, such Distribution Costs and Expenses (a) shall only be the actual, direct, verifiable costs and expenses, (b) shall not include interest, (c) shall be net of discounts, credits, refunds, allowances, and rebates received for or in connection with said Picture or services rendered on such Picture, and (d) shall not include internal fixed or percentage charges nor fixed or percentage overhead charges. Only costs directly related to the Picture may be charged to the Picture unless otherwise expressly permitted hereby. To the extent that any services, personnel, materials or facilities are provided to or for a Picture by PPC or any affiliate thereof, or Viacom or any affiliate thereof (collectively “PPC Services”), all such PPC Services shall be charged at the lower of the then existing PPC rate for such PPC Services or at a rate not to exceed the rate at which such PPC Services could be obtained from an unaffiliated third party providing such services, personnel, materials or facilities. The provisions of (a) through (d) shall apply to the immediately preceding sentence. Further, to the extent any Distribution Costs and Expenses, including without limitation PPC Services are incurred with respect to multiple pictures one or more of which is also a Picture (“Multi-Project Distribution Costs and Expenses”), such Multi-Project Distribution Costs and Expenses may be allocated to a Picture if such Distribution Costs and Expense was directly related to such Picture. In such event, the allocation of the Multi-Picture Distribution Costs and Expenses shall be fair and reasonable based on detailed supporting documentation and information for such allocation with respect to such Multi-Project Distribution Costs and Expenses. The supporting documentation and information for such allocation shall be made available to Marvel as part of its exercise of its audit rights.

 

I.

DISTRIBUTION COSTS.

PPC shall deduct and retain for its own account from Gross Receipts the aggregate of the following costs, expenses, and charges paid or incurred by PPC or a subdistributor (collectively, the “Distribution Costs”):

 

A.

Conversion.

Costs, discounts, and expenses incurred in the Conversion and remittance of revenue from outside the U.S. to the U.S., including costs of contesting imposition of restricted funds.

 

 

 

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B.

Checking.

Costs of checking theatre attendance, subscribers, and receipts and of investigating unauthorized usage of the Picture, whether services are performed or invoiced by PPC employees or other Persons.

 

C.

Collections.

Costs incurred in connection with collection of Gross Receipts, including reasonable outside attorney and auditor fees, and costs and liabilities incurred in connection therewith.

 

D.

Licenses.

All licenses, duties, fees, or any other amounts directly required to permit the exploitation of Picture in accordance with the terms of the Agreement.

 

E.

Taxes.

Taxes and governmental fees of any nature and however characterized (other than PPC or Subdistributor corporate income taxes), including the costs of contesting the imposition of such taxes and fees, and the interest and penalties that may be imposed thereon, imposed directly on (or directly related to) the Picture or any part thereof (including the employer’s share of payroll taxes with respect to deferred or contingent compensation) or on the Gross Receipts or the license, distribution, or exhibition of the Picture, as applicable, or on the collection, conversion, or remittance of monies connected with the Picture, provided that such costs under this Paragraph E are pursuant to and directly related to PPC’s exercise of the Paramount Distribution Rights.

 

F.

Residuals.

Costs incurred and payments computed in accordance with collective bargaining agreements by reason of or as a condition to use or to exhibit the Picture. Offsetting residuals against third party participations and vice versa shall be done in accordance with the applicable agreements between such third party and Marvel and as provided to PPC as Marvel’s paymaster, unless prohibited by applicable collective bargaining agreements.

 

G.

Trade Dues. An allocable portion of dues and assessments including legal fees, costs and contributions to the MPAA, the AMPTP or similar organizations throughout those countries of the world that are part of the Territory (as defined in the Agreement).

 

H.

Ad Costs.

The costs of advertising, promoting, exploiting, and publicizing the Picture (collectively “Ad Costs”), including the costs of ad space, ad time, physical

 

 

 

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material used for production of or broadcasting ads and commercials, shipping, integrating, and monitoring of ads and commercials, and preparation and distribution of ad and promotional material; the reasonable within PPC corporate policy travel and business expenses of PPC advertising and marketing executives and employees in connection with the Picture and personalities connected to Picture; salaries and/or fees and travel and business expenses of advertising personnel, publicists, press representatives, and field exploitation persons all of which shall be appropriately allocated to the Picture; previews; screenings; premieres; entertainment of press and personalities; research and tests of ad concepts and effectiveness; press books and kits, trailers, stills, and other accessories and publicity releases; and advertising allowances to theatres or other exhibitors regardless of how effected. Advertising facilities and advertising employees (including field publicists and creative advertising personnel) may be used to the extent they reasonably meet advertising requirements, and all charges for the applicable facilities or services shall be included as an advertising cost in accordance with the terms of the preamble to this Exhibit A and provided none of the foregoing shall be a means by which PPC can include overhead.

There shall not be any Ad Overhead charged.

Any rebates, refunds, discounts, or other sums paid back to PPC directly in connection with such advertising costs shall be credited back to such advertising costs; and any rebates, refunds, discounts, or other sums paid back to PPC in connection with multiple picture including the Picture shall be credited back in accordance with the procedure set forth in the preamble to this Exhibit A pertaining to allocation.

 

I.

Prints.

Subject to Section 13 of the Agreement, the costs of prints and audiovisual cassettes, discs, or any similar devices embodying copies of the Picture, including the laboratory costs and the costs of labor, service and materials, titles, discs, dubbing, subtitling, gauge reductions, inspection, repair, shipping, storage, delivery, and insurance thereon.

 

 

J.

Transportation.

 

The costs of transportation, shipping, reels, and containers, and related charges, to the extent not covered under Paragraph IV.H or Paragraph IV.M.

 

K

Claims.

Costs of claims and litigation (such as infringement, unfair competition, anti-trust, privacy, and defamation) arising out of distribution of the Picture in the PPC territories, including reasonable outside attorney and auditor fees.

 

 

 

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L.

Copyright, Trademark. and Patent Costs.

Copyright, trademark, and patent costs in connection with the Picture if any and the protection of such copyrights, trademarks, and patents, including royalties payable to manufacturers of sound recording and reproduction equipment, to the extent not included in the Cost of Production. Notwithstanding the foregoing, PPC and UIP acknowledge that the copyright and trademark in and to the Picture are the property of Marvel and as such neither PPC nor UIP may allocate copyright, trademark or patent registration or application costs for all pictures to the Picture. The foregoing shall not prohibit PPC from recouping as a Distribution Cost and Expense the filing fees associated with securing copyright and/or patent protection for the Picture in connection with Paramount’s exercise of its rights set forth in the Agreement.

 

M.

Other Versions.

Subject to Section 13 of the Agreement, costs to make, deliver, and use Foreign audiovisual cassettes, discs, or any similar devices, or any other media versions of the Picture, or the titles thereof, or to make changes required by censorship or rating considerations, to the extent not included in the Cost of Production.

 

N.

Insurance.

Costs of insurance coverage for any risk of loss with respect to the Picture, to the extent not included in the Cost of Production.

 

O.

General.

In the context of arrangements of the type set forth in the Agreement for the distribution and marketing of motion pictures, all other costs not expressly identified in A.-N. above that are directly incurred with respect to the Pictures that are customarily incurred in connection with the distribution and exploitation of motion pictures or customarily treated as a costs of distribution and which are not included in the cost of production.

 

 

 

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EXHIBIT “HE”

 

HOME ENTERTAINMENT DISTRIBUTION COSTS

Each of the items distribution costs set forth in this Exhibit “HE” (a) shall only be the actual, direct, verifiable costs and expenses, (b) shall not include interest, (c) shall be net of discounts, credits, refunds, allowances, and rebates received for or in connection with said Picture or services rendered on such Picture, and (d) shall not include internal fixed or percentage charges nor fixed or percentage overhead charges. Only costs directly related to the Picture may be charged to the Picture unless otherwise expressly permitted hereby. To the extent that any services, personnel, materials or facilities are provided to or for a Picture by PPC or any affiliate thereof, or Viacom or any affiliate thereof (collectively “PPC Services”), all such PPC Services shall be charged at the lower of the then existing PPC rate for such PPC Services or at a rate not to exceed the rate at which such PPC Services could be obtained from an unaffiliated third party providing such services, personnel, materials or facilities. The provisions of (a) through (d) shall apply to the immediately preceding sentence. Further, to the extent any Distribution Costs and Expenses, including without limitation PPC Services are incurred with respect to multiple pictures one or more of which is also a Picture (“Multi-Project Distribution Costs and Expenses”), such Multi-Project Distribution Costs and Expenses may be allocated to a Picture if such Distribution Costs and Expense was directly related to such Picture. In such event, the allocation of the Multi-Picture Distribution Costs and Expenses shall be fair and reasonable based on detailed supporting documentation and information for such allocation with respect to such Multi-Project Distribution Costs and Expenses. The supporting documentation and information for such allocation shall be made available to Marvel as part of its exercise of its audit rights. In addition, the total of the Home Entertainment Distribution Costs is subject to the cap set forth in Section 13 of the Agreement.

1.             All mastering and manufacturing costs including without limitation the costs of authoring and compressing, duplication, packaging, costs of all new materials, warehousing and storage costs (provided, however, that such amounts shall be reduced by any rebates, refunds, discounts or other sums paid or credited back to PPC by third parties directly in connection with the Home Copies of the Picture).

2.             Any payments to or on behalf of any person appearing in or rendering services in connection with or elements of the Picture, including without limitation any residual or other payments to any union, guild, music publisher, recording company, performing rights society, performer, director, craftsman, producer or writer arising from the exploitation of Home Copies of the Picture, to the extent not otherwise charged as a distribution cost.

3.             All costs of advertising, promoting, exploiting and publicizing the Home Copies of the Picture, including without limitation in-store advertising, P.O.P. and merchandising co-op (provided, however, that such amounts shall be reduced by any rebates, refunds, discounts or other sums paid or credited back to PPC or any affiliate thereof by third parties in connection with the Home Copies of the Picture).

4.             All shipping and delivery charges in connection with the Home Copies of the Picture, including without limitation, sales order and returns processing costs, the cost of containers,

 

 

 

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packaging, handling, transportation, storage and insurance and all duties, customs and taxes imposed in connection therewith, to the extent not otherwise charged as a distribution cost.

5.             Subject to Section 18.C of the Agreement, returns, price adjustments and defective Home Copies, including reasonable reserve for returns, price adjustments and defective Home Copies, which reserves will be liquidated in a reasonable time.

6.             Collection costs, to be defined as the direct costs and expenses incurred in the collection of Gross Receipts derived from Home Copies.

7.             Anti-piracy costs including the prosecution of actions against third parties for infringement of any Videocassette right in the Picture, including reasonable outside attorney fees.

8.             Currency conversion costs actually incurred in connection with converting Gross Receipts derived from Home Copies which are received in foreign currency into U.S. dollars to the extent applicable.

9.             Subject to Section 18.E of the Agreement, all taxes related to the monies derived on account of the manufacture, distribution and other exploitation of Home Copies of the Picture other than income tax of PPC or any affiliate thereof; provided however, taxes imposed on PPC or any affiliate, including without limitation UIP, on monies paid from or received from PPC or from any affiliate shall not be a distribution cost.

10.          In the context of arrangements of the type set forth in the Agreement for the distribution and marketing of Home Copies, all other costs not expressly identified in 1-9 above that are directly incurred with respect to the Home Copies of the Pictures that are customarily incurred in connection with the distribution and exploitation of Home Copies or customarily treated as a costs of distribution and which are not included in the cost of production.

As used herein, the term “Home Copies” shall mean audiovisual cassettes, discs, or any similar devices, including any functional equivalent means or methods, in whatever form, whether now known or hereafter devised, and however delivered, transmitted, or made available to the viewer, through which the Picture is available for viewing at a time or times selected by the viewer.

 

 

 

 

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 EX-10 4 ex10-2.htm EX. 10.2

 

Exhibit 10.2

 

 

MARVEL ENTERTAINMENT, INC.

 

PERFORMANCE-BASED PHANTOM STOCK AGREEMENT

 

THIS AGREEMENT, dated as of the [__] day of [____], 20[__] (the “Grant Date”), between Marvel Entertainment, Inc. (the “Company”), and [________________________] (“Participant”) , is entered into pursuant to the Marvel Entertainment, Inc. 2005 Stock Incentive Plan (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 officers, employees, consultants and directors of the Company and its Subsidiaries; and

 

WHEREAS, the Committee responsible for administration of the Plan has determined to grant phantom stock to Participant as provided herein.

 

 

NOW, THEREFORE, the parties hereto agree as follows:

 

1.          Grant of Phantom Stock. Pursuant to and subject to the terms and conditions set forth herein and in the Plan, the Committee hereby confirms the grant to Participant of [_____] shares of Phantom Stock, subject to the restrictions set forth herein (the “Phantom Stock”). Each share of Phantom Stock constitutes a conditional right of Participant to receive a cash payment equal to the Fair Market Value (as defined below) of one share of the Company’s common stock, par value $0.01 per share (“Common Stock”), such settlement to occur if and at such time as the Phantom Stock vests. The Phantom Stock is a Performance Award granted under Sections 6(i) and (7) of the Plan and is subject to the risk of forfeiture and other restrictions specified in this Agreement. In no event will actual shares of Common Stock be delivered in settlement of Phantom Stock. All terms, conditions and restrictions of the Plan are incorporated herein and made part hereof as if stated herein. If there is any conflict between the terms and conditions of the Plan and this Agreement, the terms and conditions of the Plan as interpreted by the Committee shall govern.

 

 

2.

Grant Date. The Grant Date of the Phantom Stock is as specified in the first paragraph hereof.

 

 

3.

Vesting of Phantom Stock.

 

(a)         Vesting Schedule. The Phantom Stock shall become vested and non-forfeitable only if the following performance goal (the “Performance Goal”) is met: [insert performance criteria expressed in terms of operating income or such other performance criteria as are chosen by the Committee pursuant to the Plan]; provided, that, even if the Performance Goal has not been met, the Phantom Stock shall become vested and non-forfeitable in full immediately upon (i) a Third-Party Change of Control, as defined in subsection (b) below, or (ii) the termination of Participant’s employment with or service to the Company because of Participant’s death or disability, unless the events described in clauses (i) and (ii) of this sentence occur after the Committee has determined that the Performance Goal was not met. If the Performance Goal has been met, then the Phantom Stock shall become vested and non-forfeitable in accordance with the following schedule: [One-half of the Phantom Stock granted hereunder shall become vested and non-forfeitable on the second anniversary of the Grant Date and an additional one-half of the Phantom Stock granted hereunder shall become vested and non-forfeitable on the third anniversary of the Grant Date] [or insert other vesting schedule determined by the Committee].

 

(b)         Definition of Third-Party Change of Control. For purposes of this Agreement, a Third-Party Change in Control shall be deemed to have occurred if (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than an Excluded Person or Excluded Group (as defined below) (hereinafter, a “Third Party”), is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities entitled to vote in the election of directors of the Company, (ii) the Company is a party to any merger, consolidation or similar transaction as a result of which the stockholders of

 

 

 

 

1

 


 

the Company immediately prior to such transaction beneficially own securities of the surviving entity representing less than fifty percent (50%) of the combined voting power of the surviving entity’s outstanding securities entitled to vote in the election of directors of the surviving entity or (iii) all or substantially all of the assets of the Company are acquired by a Third Party. “Excluded Group” means a “group” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) that includes one or more Excluded Persons; provided that the voting power of the voting stock of the Company “beneficially owned” (as such term is used in Rule 13d-3 promulgated under the Exchange Act) by such Excluded Persons (without attribution to such Excluded Persons of the ownership by other members of the “group”) represents a majority of the voting power of the voting stock “beneficially owned” (as such term is used in Rule 13d-3 promulgated under the Exchange Act) by such group. “Excluded Person” means Isaac Perlmutter and Avi Arad or any of their affiliates, any spouse or any lineal descendants of Messrs. Perlmutter or Arad, and any trust established solely for the benefit of, and any charitable trust or foundation established by, Messrs. Perlmutter or Arad or their spouses or lineal descendants and each of their respective affiliates.

 

4.           Settlement. Each share of Phantom Stock will be settled, at the date on which such share becomes vested and non-forfeitable, by payment of the Fair Market Value of one share of Common Stock to Participant (subject to any applicable withholding under Section 10). Upon settlement of a share of Phantom Stock as provided in the previous sentence, such share of Phantom Stock shall cease to exist and shall provide no further rights to Participant. Elective deferrals of settlement will not be permitted. For purposes of this Agreement, “Fair Market Value” as of a particular date shall mean the closing sales price per share of Common Stock on a national securities exchange for the last preceding date on which there was a sale of such shares on such exchange or, if Common Stock is not then listed on a national securities exchange, “Fair Market Value” shall be determined in good faith by the Committee and (if possible) based on sales prices or quotations on the principal securities market in which Common Stock is then listed or quoted.

 

5.           Effect of Termination of Employment or Service. Except as otherwise provided in Section 3(a)(ii) hereof or in an employment agreement between Participant and the Company, if Participant’s employment with or service to the Company is terminated for any reason, any portion of the Phantom Stock that has not become vested and non-forfeitable prior to such termination shall be immediately forfeited.

 

6.           Restriction on Transfer of Phantom Stock. Participant shall have no right to sell, transfer, assign, pledge, or otherwise encumber or dispose of (i) the shares of Phantom Stock (except for forfeitures to the Company) or (ii) any rights relating thereto under this Agreement.

 

 

7.

Dividend Equivalents and Adjustments.

 

(a)         Dividend Equivalents. In the event of dividends or distributions on Common Stock, the following terms and conditions shall apply except as provided in Section 7(b) below:

 

(i)           In the event of a cash dividend or distribution on Common Stock, the per-share amount of such dividend or distribution shall be paid in cash to Participant with respect to each share of Phantom Stock granted hereunder and shall be non-forfeitable.

 

(ii)          In the event of a non-cash dividend or distribution in the form of property other than Common Stock payable on Common Stock (including shares of a subsidiary of the Company distributed in a spin-off), a number of additional shares of Phantom Stock shall be deemed granted to Participant as of the payment date for such dividend or distribution equal to the number of shares of Phantom Stock held by Participant as of the record date for such dividend or distribution multiplied by the fair market value, determined in good faith by the Committee, of such property actually paid as a dividend or distribution on each outstanding share of Common Stock at such payment date, divided by the Fair Market Value of a share of Common Stock at such payment date. Any such additional Phantom Stock will become vested and non-forfeitable if and to the same extent as the underlying Phantom Stock becomes vested and non-forfeitable, and shall be subject to all other terms and conditions as apply to such underlying Phantom Stock.

 

 

 

 

2

 


 

(iii)         In the event of a dividend or distribution in the form of Common Stock or a split-up of shares, then a number of additional shares of Phantom Stock shall be deemed granted to Participant as of the payment date for such dividend or distribution equal to the number of shares of Common Stock that Participant would have received if the Phantom Stock held by Participant as of the record date for such dividend or distribution had been actual Common Stock held by Participant at that date. Any such additional Phantom Stock will become vested and non-forfeitable if and to the same extent as the underlying Phantom Stock becomes vested and non-forfeitable, and shall be subject to all other terms and conditions as apply to such underlying Phantom Stock.

 

(b)         Adjustments. The Committee shall conclusively determine the appropriate adjustments, if any, to the number of shares of Phantom Stock and the kind of shares to which Phantom Stock relates, the number of shares of Phantom Stock to become vested and non-forfeitable, and other terms and conditions of the Phantom Stock or otherwise contained in this Agreement, in order to prevent dilution or enlargement of Participant’s rights hereunder and to reflect any changes in the number of outstanding shares of Common Stock resulting from any Change in Capitalization, taking into account any Phantom Stock or other amounts paid or credited to Participant in connection with such event under Section 7(a) hereof. In addition, the Committee may vary the treatment of any dividend or distribution as specified under Section 7(a) (including in case of an extraordinary cash dividend), in its discretion. The Committee may determine how to treat any fractional share of Phantom Stock resulting under this Agreement.

 

 

8.

Other Terms of Phantom Stock.

 

(a)         No Stockholder Rights; Unfunded Award. Participant shall have no rights of a stockholder of the Company with respect to Phantom Stock. Any provision for distribution in settlement of Phantom Stock hereunder shall be by means of bookkeeping entries on the books of the Company and shall not create in Participant or any beneficiary any right to, or claim against, any specific assets of the Company, nor result in the creation of any trust or escrow account for Participant. With respect to any entitlement of Participant or any beneficiary to any distribution hereunder, Participant or such beneficiary shall be a general creditor of the Company.

 

(b)         Consideration for Grant of Phantom Stock. Participant shall be required to pay no cash consideration for the grant of the Phantom Stock.

 

(c)          Income Taxes and Deferral. Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with the Phantom Stock awarded pursuant to this Agreement (including any taxes arising under Section 409A of the Code), and the Company shall not have any obligation to indemnify or otherwise hold Participant harmless from any or all of such taxes. The Committee shall have the discretion to unilaterally modify Participant’s award pursuant to this Agreement in a manner that conforms with the requirements of Section 409A of the Code and/or that voids any election to the extent it would violate Section 409A of the Code, and, for any distribution election that would violate Section 409A of the Code, the Committee shall have the discretion to unilaterally to make distributions pursuant to this Agreement at the earliest to occur of a distribution event that is allowable under Section 409A of the Code or any distribution event that is both allowable under Section 409A of the Code and is elected by the Participant, subject to any second election to defer, provided that the Committee permits second elections to defer in accordance with Section 409A(a)(4)(C) of the Code. The Committee shall have the sole discretion to interpret the requirements of the Code, including Section 409A, for purposes of the award of Phantom Stock pursuant to this Agreement.

(d)        Statements. An individual statement or equivalent information as to Participant’s Phantom Stock will be issued at such times and in such form as may be determined by the Company. Such a statement may be combined with or include information regarding other plans and compensatory arrangements for employees.

 

 

 

 

3

 


 

(e)       Extraordinary Compensation. The value of the Phantom Stock is an extraordinary item of compensation, in the nature of a bonus, and as such is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or similar payments.

 

(f)          Compliance Matters. The Company shall have no obligation to settle Phantom Stock until such time as counsel to the Company shall have determined that such actions by the Company are in compliance with all applicable laws and regulations of governmental authorities and the requirements of any securities exchange on which shares of Common Stock are traded.

 

9.           No Right to Continued Employment. Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon Participant any right with respect to continuance of employment by the Company or any subsidiary, nor shall this Agreement or the Plan interfere in any way with the right of the Company to terminate Participant’s employment at any time.

 

10.         Withholding of Taxes. The Company shall have the right to deduct from any distribution of cash to Participant 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 Phantom Stock and any distribution relating thereto.

 

11.         Receipt of Plan. Participant hereby acknowledges receipt of a copy of the Plan. Participant hereby acknowledges that all decisions, determinations and interpretations of the Committee in respect of the Plan, this Agreement and the Phantom Stock shall be final and conclusive.

 

12.         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 Company and, if such change is materially adverse to or imposes any additional obligation on Participant, by Participant.

 

13.         Severability. 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.

 

14.         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.

 

15.         Successors in Interest. This Agreement shall inure to the benefit of and be binding upon any successor corporation to the Company. This Agreement shall inure to the benefit of Participant’s legal representatives. All conditions and other terms imposed upon Participant and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon Participant’s heirs, executors, administrators and successors.

 

16.         Entire Agreement. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof.

 

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 Participant and the Company for all purposes.

 

COMPANY:

 

MARVEL ENTERTAINMENT, INC.

 

 

By:

______________________________

 

 

 

 

4

 


 

 

Name:

Title:

 

PARTICIPANT:

 

_______________________________________

 

 

 

 

5

 

 

 

 EX-10 5 ex10-3.htm EX. 10.3

 

Exhibit 10.3

 

 

FORM OF PERFORMANCE-BASED AWARD LETTER UNDER 2005 CASH INCENTIVE
COMPENSATION PLAN

 

[Date]

 

[Name of Executive]

Marvel Entertainment, Inc.

417 5th Avenue

New York, New York 10016

 

RE: Performance-Based Award for the [insert Performance Period] under the 2005 Cash Incentive
Compensation Plan    

 

[Dear Executive:]

 

Pursuant to the 2005 Cash Incentive Compensation Plan (the “Plan”), on [insert date] the Compensation Committee of the Board of Directors (the “Committee”) of Marvel Entertainment, Inc. (the “Company”) authorized granting you the following performance-based award(s):

 

Performance Award A: You are not eligible for any portion of the Performance Award unless [insert threshold performance criterion expressed in terms of operating income or such other performance criteria as are determined by the Committee pursuant to the Plan] (the “Threshold Performance Criterion”) is met. If the Threshold Performance Criterion is met, you are eligible for an award of [$_____]. In addition, you will be entitled to an additional award equal to [____], for performance [expressed in terms of operating income or such other performance criteria as are determined by the Committee pursuant to the Plan] above the Threshold Performance Criterion.

 

 

[additional awards to be expressed in the same manner]

 

1.            Award Performance-Based Compensation. The Award(s) described above are intended to qualify as “performance-based compensation” under Section 162(m). Accordingly, performance goals and related terms of the Award(s) were established during the first 90 days of the performance period, and during the first 25% of any performance period shorter than one year. The Performance-Based Award(s), including the performance criteria and goals for such awards, were established on [insert date] by the Committee for [insert Performance Period].

 

2.            Award Subject to Plan. The Award(s) set forth herein are subject to the terms and conditions set forth herein and in the Plan, including, but not limited to, the Per Person Award Limitation contained in Section 5 of the Plan.

 

3.            Committee Determines Attainment of Performance Goals. An Award shall become vested and non-forfeitable only if the Committee determines that the threshold performance goal related to the Award has been met. The Committee shall determine the level of attainment of the pre-set performance goals and whether other material requirements of the Award have been met.

 

 

 

1

 


 

4.            Discretion to Pay Prior to the End of the Performance Period. In the event that the Committee determines that a performance goal has been attained prior to the end of the performance period, the Committee retains the discretion to pay such award to you prior to the end of the performance period.

 

5.            Award Forfeited on Termination. Except as otherwise provided in your employment agreement with the Company, if your employment with or service to the Company is terminated for any reason, any portion of the Award that is forfeitable at or prior to such termination pursuant to your employment agreement or this Award Letter shall be immediately forfeited.

 

6.            No Right to Continued Employment. Nothing in this Award Letter or the Plan shall be interpreted or construed to confer upon you any right with respect to continuance of employment by the Company or any subsidiary, nor shall this Award Letter or the Plan interfere in any way with the right of the Company to terminate your employment.

 

7.            Witholding Taxes. The Company shall have the right to deduct from any distribution to you an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld with respect to the Award(s) and any distribution relating thereto.

 

COMPANY:

 

MARVEL ENTERTAINMENT, INC.

 

 

By:

______________________________

Name:

Title:

 

 

 

 

 

2

 

 

 

 EX-10 6 ex10-4.htm EX. 10.4

 

Exhibit 10.4

 

 

AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT

This is Amendment No. 1, dated as of September 6, 2005 (this “Amendment”) to the EMPLOYMENT AGREEMENT, dated as of August 1, 2003 (the “Agreement”), between Marvel Enterprises, Inc., a Delaware corporation (the “Company”) and Timothy Rothwell (the “Executive”).

WHEREAS, the Company currently employs the Executive as President, Consumer Products Group pursuant to the Agreement; and

WHEREAS, the Company and the Executive have agreed to amend the Agreement in the manner, and on the terms and conditions, provided for herein;

 

NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties to this Amendment hereby agree as follows:

 

1.            Amendment to Section 2.1 of the Agreement. The second sentence of Section 2.1 of the Agreement is hereby replaced by the following:

“The term of the Executive’s employment under this Agreement (the “Term”) shall end on September 5, 2008 (the “Expiration Date”).”

 

2.            Amendment to Section 3.1 of the Agreement. Section 3.1 of the Agreement is hereby amended and restated in its entirety to read as follows:

“3.1      Salary. As compensation for all services to be rendered pursuant to this Agreement, the Company agrees to pay the Executive during the Term a base salary, payable bi-weekly in arrears, at the annual rate of $500,000, such rate to change to $600,000 on January 1, 2006, $700,000 on January 1, 2007 and $800,000 on January 1, 2008, less (in each case) such deductions or amounts to be withheld as required by applicable law and regulations and deductions authorized by the Executive in writing. The Executive’s base salary as in effect from time to time is referred to in this Agreement as the “Base Salary”.”

 

 

3.

General.

This Amendment shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely in New York, without regard to the conflict of law principles of such state.

The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Amendment.

The Agreement, as amended by this Amendment, sets forth the entire agreement and understanding of the parties relating to the subject matter hereof and supersedes all prior agreements, arrangements and understandings, written or oral, relating to the subject matter hereof. No representation, promise or inducement has been made by either party that is not

 


 

embodied in the Agreement as amended by this Amendment, and neither party shall be bound by or liable for any alleged representation, promise or inducement not so set forth. Except as expressly changed by this Amendment, the Agreement remains in full force in accordance with its terms.

This Amendment may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Amendment and all of which, when taken together, will be deemed to constitute one and the same agreement.

IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first above written.

COMPANY:

MARVEL ENTERPRISES, INC.

 

 

By: /s/ John Turitzin

Name:   John Turitzin

 

Title:

     Executive Vice President

 

 

EXECUTIVE:

/s/ Timothy Rothwell

Timothy Rothwell

 

 

2

 

 

 

 EX-10 7 ex10-5.htm EX. 10.5

 

Exhibit 10.5

 

 

CREDIT AGREEMENT

CREDIT AGREEMENT dated as of November 9, 2005, among MARVEL ENTERTAINMENT, INC., a Delaware corporation, and HSBC BANK USA, NATIONAL ASSOCIATION, as Lender. The parties hereto hereby agree as follows:

ARTICLE I: DEFINITIONS

Section 1.1. Defined Terms. As used in this Agreement, the following terms have the meanings specified below:

“Account” has the meaning specified in the Uniform Commercial Code as in effect in the State of New York.

“Account Debtor” has the meaning specified in the Uniform Commercial Code as in effect in the State of New York.

“Additional Collateral” means any additional collateral pledged by any Obligor in which the Lender has a first priority perfected security interest and such additional collateral may include cash, securities, letters of credit or any other assets acceptable to the Lender in its sole discretion.

“Adjusted Value” means the product of (A) three, and (B) the average annual cash revenues for the most recent 60 months attributable to the applicable Eligible License Rights.

“Advance Rate” means, (a) with respect to any Eligible Receivable, 75%, (b) with respect to any Eligible License Rights, 20%, and (c) with respect to Eligible Marvel Stock, 50%. The “Advance Rate”, except with respect to Eligible Marvel Stock, may be reduced from time to time by the Lender in the reasonable exercise of its credit judgment.

“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling or that is controlled by or is under common control with such Person, each officer, director, general partner or joint-venturer of such Person, and each Person that is the beneficial owner of 5% or more of any class of voting stock of such Person. For the purposes of this definition, “control” means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Annual Audited Financial Statements” means financial information regarding the Borrower consisting of a balance sheet of the Borrower as of the end of such year and related statements of income and cash flow of the Borrower for such fiscal year, all prepared in conformity with GAAP and certified, in the case of such Annual Audited Financial Statements, without qualification as to the scope of the audit or as to the Borrower being a going concern by PricewaterhouseCoopers LLP (“PWC”) or any successor independent auditor of the Borrower, together with the report of such accounting firm stating that (i) such Annual Audited Financial Statements fairly present the financial position of the Borrower as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which PWC shall concur

 

 


and that shall have been disclosed in the notes to the Annual Audited Financial Statements) and (ii) the examination by PWC in connection with such Annual Audited Financial Statements has been made in accordance with GAAP.

“Availability Reserve” means, as of two Business Days after the date of written notice of any determination thereof to the Borrower by the Lender, such amounts as the Lender may from time to time establish in the Lender’s reasonable discretion, in order either (a) to preserve the value of the Collateral or the Lender’s Lien thereon or (b) to provide for the payment of unanticipated liabilities of the Borrower arising after the Closing Date.

“Available Credit” means the amount, if any, by which (a) the Maximum Credit at such time exceeds (b) the Outstandings at such time.

“Borrower” means Marvel Entertainment, Inc., a Delaware corporation.

“Borrowing Base” means, at any time, the sum of (a) the product of the Advance Rate then in effect for Eligible Receivables and the face amount of all Eligible Receivables of the Borrower (calculated net of all finance charges, late fees and other fees that are unearned, sales, excise or similar taxes, and credits or allowances granted at such time), (b) the product of the Advance Rate then in effect for Eligible License Rights and the Adjusted Value of such Eligible License Rights, and (c) the product of the Advance Rate for Eligible Marvel Stock and the Market Price of such Eligible Marvel Stock.

“Business Day” means a day other than a Saturday, Sunday or any day on which commercial banks in New York, New York are authorized or required by law to close; provided that, when used in connection with the Loans when they are bearing interest based on LIBOR, the term “Business Day” shall also exclude any day on which banks are not open for dealings in Dollar deposits in the London interbank market.

“Capital Expenditures” means, for any Person for any period, the aggregate of amounts that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of such Person and its subsidiaries, excluding interest capitalized during construction.

“Capital Lease” means, with respect to any Person, any lease of, or other arrangement conveying the right to use, property by such Person as lessee that would be accounted for as a capital lease on a balance sheet of such Person prepared in conformity with GAAP.

“Capital Lease Obligations” means, with respect to any Person, the capitalized amount of all obligations of such Person under Capital Leases.

“Cash Collateral Account” means one or more accounts of any Obligor at the Lender which accounts are accounts in which the Lender holds a first priority security interest.

“Cash Deposit” means, from time to time, the amount of cash on deposit in the Cash Collateral Account.

 

 

2

 


 

“Closing Date” means the date on which the conditions specified in Section 4.1 are satisfied.

“Collateral” has the meaning set forth in Section 2.8.

“Commitment” means $150,000,000, as such amount may be reduced from time to time pursuant to the terms of this Agreement (including under Section 2.5(a)(ii)).

“Copyright Licenses” means any written agreement naming the Borrower as licensor granting any right under any Copyright, including the grant of any right to copy, publicly perform, create derivative works, manufacture, distribute, exploit or sell materials derived from any Copyright.

“Copyrights” means (a) all copyrights arising under the laws of the United States of America, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any foreign counterparts thereof, and (b) the right to obtain all renewals thereof.

“Credit Documents” means this Agreement, the Notes, the Guaranty, the Security Documents, and any other documents hereafter delivered to the Lender by any Obligor evidencing, guarantying or securing the Loans or the Collateral.

“Debt” of any Person means without duplication (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments or that bear interest, (c) all reimbursement and all obligations with respect to letters of credit, bankers’ acceptances, surety bonds and performance bonds, whether or not matured, (d) all indebtedness for the deferred purchase price of property or services, other than trade payables incurred in the ordinary course of business that are not overdue, (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (f) all Capital Lease Obligations of such Person and the present value of future rental payments under all synthetic leases, (g) all guaranty obligations of such Person, (h) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any stock of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary liquidation preference and its involuntary liquidation preference plus accrued and unpaid dividends, (i) all payments that such Person would have to make in the event of an early termination on the date indebtedness of such Person is being determined in respect of Rate Hedging Contracts of such Person, and (j) all indebtedness of the type referred to above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including Accounts and general intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness.

 

 

3

 


 

“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.

“Dollars” or “$” refers to lawful money of the United States of America.

“EBITDA” means, with respect to the Borrower for any period, (a) Net Income of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) for such period plus (b) the sum of, in each case to the extent included in the calculation of such Net Income but without duplication, (i) any provision for income taxes, (ii) interest expense, (iii) loss from extraordinary items, (iv) depreciation, depletion and amortization expenses and (v) all other non-cash charges and non-cash losses for such period, including the amount of any compensation deduction as the result of any grant of Stock or Stock Equivalents to employees, officers, directors or consultants, minus (c) the sum of, in each case to the extent included in the calculation of such Net Income, but without duplication, (i) any credit for income tax, (ii) interest income, (iii) gains from extraordinary items for such period, (iv) any aggregate net gain (but not any aggregate net loss) from the sale, exchange or other disposition of capital assets by the Borrower or any of its subsidiaries, and (v) any other non-cash gains or other items which have been added in determining Net Income, including any reversal of a change referred to in clause (b)(v) above by reason of a decrease in the value of any stock.

“Eligible License Rights” means, with respect to any Obligor, all Pledged License Rights of the Obligors (a) that are owned solely by such Obligor, (b) with respect to which the Lender has a valid and perfected first priority Lien, and (c) with respect to which no representation or warranty contained in any Credit Document has been breached in any material respect.

“Eligible Marvel Stock” means Marvel Stock (a) owned by the Borrower, (b) that has been repurchased by the Borrower after the Closing Date, (c) that is held in a securities account with the Lender or an Affiliate of the Lender, (d) that constitutes Collateral in which the Lender has a fully perfected first priority Lien, (e) with respect to which no representation or warranty contained in any Credit Document has been breached, and (e) that is listed on the New York Stock Exchange or another registered national stock exchange acceptable to the Lender.

“Eligible Receivable” means, with respect to any Obligor, the gross outstanding balance of each Account of such Obligor arising out of the sale of merchandise, goods or services in the ordinary course of business, that is made by such Obligor to a Person that is not an Affiliate of such Obligor and that constitutes Collateral in which the Lender has a fully perfected first priority Lien; provided, however, that an Account shall not be an “Eligible Receivable” if any of the following shall be true:

(a)          such Account is more than 60 days past due according to the original terms of sale or license; or

(b)          any warranty contained in this Agreement or any other Credit Document with respect to such specific Account is not true and correct in all material respects with respect to such Account; or

 

 

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(c)          the Account Debtor on such Account has disputed liability or made any claim with respect to any other Account due from such Account Debtor to such Obligor or any Affiliate of such Obligor but only to the extent of such dispute or claim; or

(d)          the Account Debtor on such Account has (i) filed a petition for bankruptcy or any other relief under the United States of America bankruptcy code or any other law relating to bankruptcy, insolvency, reorganization or relief of debtors, (ii) made an assignment for the benefit of creditors, (iii) had filed against it any petition or other application for relief under the United States bankruptcy code or any such other law, (iv) has failed, suspended business operations, become insolvent, called a meeting of its creditors for the purpose of obtaining any financial concession or accommodation or (v) had or suffered a receiver or a trustee to be appointed for all or a significant portion of its assets or affairs; or

(e)          the Account Debtor on such Account or any of its Affiliates is also a supplier to or creditor of such Obligor or any Affiliate of such Obligor, unless such supplier or creditor has executed a no-offset letter satisfactory to the Lender, in its sole discretion; or

(f)           the sale represented by such Account is to an Account Debtor located outside the United States of America, unless the sale is on letter of credit or acceptance terms acceptable to the Lender, in its sole discretion; or

(g)          the sale to such Account Debtor on such Account is on a bill-on-hold, guaranteed sale, sale-and-return, sale-on-approval or consignment basis; or

(h)          such Account is subject to a Lien in favor of any Person other than the Lender; or

(i)           such Account is subject to any deduction, offset, counterclaim, return privilege or other conditions other than volume sales discounts given in the ordinary course of such Obligor’s business; or

(j)           the Account Debtor on such Account is located in any State of the United States of America requiring the holder of such Account, as a precondition to commencing or maintaining any action in the courts of such State either to (i) receive a certificate of authorization to do business in such State or be in good standing in such State or (ii) file a Notice of Business Activities Report with the appropriate office or agency of such State, in each case unless the holder of such Account has received such a certificate of authority to do business, is in good standing or, as the case may be, has duly filed such a notice in such State; or

(k)          the Account Debtor on such Account is a Governmental Authority, unless such Obligor has assigned its rights to payment of such Account to the Lender pursuant to the Assignment of Claims Act of 1940, as amended, in the case of a federal Governmental Authority, and pursuant to applicable law, if any, in the case of any other Governmental Authority, and such assignment has been accepted and acknowledged by the appropriate government officers; or

 

 

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(l)           50% or more of the outstanding Accounts of the Account Debtor have become, or have been determined by the Lender, in accordance with the provisions hereof, to be, ineligible; or

(m)         the sale represented by such Account is denominated in a currency other than Dollars; or

(n)          such Account is not evidenced by an invoice, license agreement (including scheduled minimum payment due dates and amounts) or other writing in form acceptable to the Lender, in its sole discretion; or

(o)          such Obligor, in order to be entitled to collect such Account, is required to perform any additional service for, or perform or incur any additional obligation to, the Person to whom or to which it was made; or

(p)          the total Accounts of such Account Debtor to the Obligors represent more than 20% of the Eligible Receivables of the Obligors at such time, but only to the extent of such excess; or

(q)          the Lender, in accordance with its customary criteria, determines, in its reasonable discretion after two Business Days’ notice to the Borrower, that such Account might not be paid or is otherwise ineligible.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“Event of Default” has the meaning set forth in Article VI.

“Excluded Subsidiaries” means the subsidiaries of the Borrower identified on Schedule I.

“Final Maturity Date” means (a) October 31, 2007 or (b) such earlier date on which the Loans shall become due and payable in accordance with the terms of this Agreement, whether by acceleration or otherwise.

“Financial Covenant Debt” of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) means Debt of the type specified in clauses (a), (b), (d), (e), (f) and (h) of the definition of “Debt.”

“Financial Statement” means, individually, any of the Annual Audited Financial Statements or Quarterly Financial Statements required to be delivered hereunder, and “Financial Statements” means, collectively, each of the Annual Audited Financial Statements and Quarterly Financial Statements required to be delivered hereunder.

“Free Cash Flow” means, for the Borrower for any period, (a) consolidated EBITDA of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) for such period minus (b) the sum of (without duplication) (i) scheduled and mandatory cash principal payments on the Loans during such period and optional cash principal payments on the Loans during such period (but only to the extent that the Commitments are permanently reduced by the

 

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amount of such payments), (ii) scheduled cash principal payments made by the Borrower or any of its subsidiaries (other than the Excluded Subsidiaries) during such period on other Debt to the extent such other Debt and payments are permitted by this Agreement, (iii) scheduled payments made by the Borrower or any of its subsidiaries (other than the Excluded Subsidiaries) on Capital Lease Obligations to the extent such Capital Lease Obligations and payments are permitted by this Agreement, and (iv) Capital Expenditures made by the Borrower or any of its subsidiaries (other than the Excluded Subsidiaries) during such period to the extent permitted by this Agreement.

“GAAP” means generally accepted accounting principles in the United States of America

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guarantor” means Marvel Characters, Inc. and each other Person who may from time to time Guaranty the Obligations.

“Guaranty” means the guaranty of Marvel Characters, Inc., and any other guaranty executed and delivered after the date hereof, in favor of the Lender.

“Interest Period” means with respect to any Loan, the period commencing on the borrowing date for such Loan or on the last day of the immediately preceding Interest Period, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is one, two, three, six or twelve months thereafter; provided, however, that any Interest Period scheduled to end after the Final Maturity Date shall end on the Final Maturity Date; provided further that, with respect to any Interest Period commencing within the one month period immediately preceding the Final Maturity Date, such Interest Period shall have the duration selected by the Lender in its sole discretion.

“Issue” means, with respect to any Letter of Credit, to issue, extend the expiry of, renew or increase the maximum face amount (including by deleting or reducing any scheduled decrease in such maximum face amount) of, such Letter of Credit. The terms “Issued” and “Issuance” shall have a corresponding meaning.

“Lender” means HSBC Bank USA, National Association.

“Letter of Credit” means any letter of credit issued or deemed issued pursuant to Section 2.2.

“Letter of Credit Obligations” means, with respect to the Borrower at any time, the aggregate of all liabilities at such time of the Borrower to the Lender with respect to Letters of Credit, whether or not any such liability is contingent, including, without duplication, the sum

 

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of (a) the Reimbursement Obligations of the Borrower at such time and (b) the Letter of Credit Undrawn Amounts of the Borrower at such time.

“Letter of Credit Reimbursement Agreement” has the meaning specified in Section 2.2.

“Letter of Credit Request” has the meaning specified in Section 2.2.

“Letter of Credit Undrawn Amounts” means, with respect to the Borrower at any time, the aggregate undrawn face amount of all Letters of Credit issued for the account of the Borrower and outstanding at such time.

“Leverage Ratio” means, with respect to the Borrower as of any date, the ratio of (a) consolidated Financial Covenant Debt of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) outstanding as of such date to (b) consolidated EBITDA for the Borrower and its subsidiaries (other than the Excluded Subsidiaries) for last four Fiscal Quarters ending on or before such date.

“LIBOR” means with respect to any Interest Period, the rate as determined on the basis of the offered rates for deposits in Dollars for a period coextensive with that Interest Period which appear on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on the day that is two Business Days preceding the first day of that Interest Period divided by the Reserve Rate. “Reserve Rate” means 1 minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) established by the Federal Reserve Board for eurocurrency liabilities including those imposed pursuant to Regulation D; the Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

“Loan” means a loan made pursuant to Section 2.1.

“Margin” means 1.25% per annum.

“Market Price” means, on any date, (i) the closing sale price per share of the Marvel Stock on such date on the New York Stock Exchange or another registered national stock exchange acceptable to the Lender on which the Marvel Stock is then listed, or if there is no such price on such date, then the closing sale price on such exchange or quotation system on the date nearest preceding such date or (ii) if the Marvel Stock is not then publicly traded the fair market value of a share of Marvel Stock as determined by the Lender.

“Marvel Stock” means the common stock of the Borrower.

 

 

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“Master Toy License” means the license agreement dated as of July 1, 2001 by and between Marvel Characters, Inc and Toy Biz Worldwide Ltd. (“TBW”), as amended on February 8, 2002 and February 10, 2003, pursuant to which TBW has the right to make and sell toys based on all characters owned by the Borrower other than the Spider-Man family of characters as they appear in movies and television shows produced by Sony Pictures Entertainment, Inc., and any successor license entered into by the Borrower or its Affiliates upon the expiration or termination of the foregoing.

“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, prospects or financial condition of any Obligor, (b) the ability of any Obligor to perform any obligations under any Credit Document, or (c) the validity or enforceability of the Liens of the Lender in respect of the Collateral.

“Material Indebtedness” means Debt of any one or more of the Obligors (calculated on a basis that excludes the Excluded Subsidiaries) either (a) owing to the Lender or its Affiliates or (b) in an aggregate principal amount exceeding $5,000,000.

“Maximum Credit” means (a) the lesser of (i) the Commitments in effect at such time and (ii) the Borrowing Base, minus (b) the aggregate amount of all Availability Reserves in effect at such time.

“Net Income” means, for the Borrower for any period, the consolidated net income (or loss) of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) for such period; provided, however, that (a) the net income of any other Person in which the Borrower or one of its subsidiaries has a joint interest with a third party (which interest does not cause the net income of such other Person to be consolidated into the net income of such Person) shall be included only to the extent of the amount of dividends or distributions paid to such Person or subsidiary, (b) the net income of any subsidiary of such Person that is subject to any restriction or limitation on the payment of dividends or the making of other distributions shall be excluded to the extent of such restriction or limitation, (c) the net income (or loss) of any Person acquired in a pooling of interest transaction shall be excluded to the extent accrued prior to the date of such acquisition and (d) extraordinary gains and losses and any one-time increase or decrease to net income that is required to be recorded because of the adoption of new accounting policies, practices or standards required by GAAP shall be excluded.

“Net Worth” of the Borrower means, at any date, the lesser of (a) the stockholders’ equity that would be reflected on a consolidated balance sheet of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) at such date and (b)(i) the Total Assets of the Borrower at such date (other than investments in and moneys due from Affiliates) minus (ii) the Total Liabilities of the Borrower at such date.

“Note” means, collectively, the note of the Borrower, executed and delivered as provided in Section 2.5.

“Notice of Borrowing” has the meaning specified in Section 2.1(b).

“Obligations” means any now existing or hereafter arising obligations of any Obligor to the Lender, whether primary or secondary, direct or indirect, absolute or contingent,

 

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joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise under any Credit Document whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys’ fees incurred in any collection efforts or in any action or proceeding.

“Obligor” means the Borrower and the Guarantors.

“Outstandings” means, with respect to the Borrower at any time, the sum of (a) the principal amount of the Loans owing by the Borrower and outstanding at such time and (b) the Letter of Credit Obligations of the Borrower outstanding at such time.

“Patents” means (a) all letters patent of the United States, any other country or any political subdivision thereof and all reissues and extensions thereof, (b) all applications for letters patent of the United States of America or any other country and all divisions, continuations and continuations-in-part thereof, and (c) all rights to obtain any reissues or extensions of the foregoing.

“Patent License” means all agreements, whether written or oral, providing for the grant by or to the Borrower of any right to manufacture, have manufactured, use, import, sell or offer for sale any invention covered in whole or in part by a Patent.

“Permitted Liens” means, with respect to any Person, any of the following Liens: (a) Liens with respect to the payment of taxes, assessments or governmental charges in each case that are not yet due or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP; (b) Liens of landlords arising by statute and liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other liens imposed by law created in the ordinary course of business for amounts not yet due or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP; (c) encumbrances arising by reason of zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar encumbrances on the use of real property not materially detracting from the value of such real property or not materially interfering with the ordinary conduct of the business conducted and proposed to be conducted at such real property; (d) encumbrances arising under leases or subleases of real property that do not, in the aggregate, materially detract from the value of such real property or interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property; and (e) financing statements with respect to a lessor’s rights in and to personal property leased to such Person in the ordinary course of such Person’s business.

“Person” means any natural person, corporation, limited liability company, limited partnership, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Pledged License Rights” means all of the Borrower’s right title and interest in and to the Master Toy License, including (a) all rights of the Borrower to receive moneys and other property or assets due and to become due under or pursuant to the Master Toy License

 

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(such rights being subject to the right of motion picture studios to share certain license streams generated by the Master Toy License), (b) all claims of the Borrower for damages arising out of or for breach of or default under the Master Toy License, (c) all rights of the Borrower to receive moneys and other proceeds due and to become due pursuant to any indemnity, costs and expenses provision or guaranty under the Master Toy License, (d) the right of the Borrower to terminate the Master Toy License, to perform thereunder and to compel performance and to otherwise exercise all rights and remedies thereunder, and (e) all accounts and general intangibles relating to or arising in connection with or out of the Master Toy License.

“Pledged Securities” means, from time to time, the securities credited to the Pledged Securities Account (including only Marvel Stock owned by the Borrower).

“Pledged Securities Account” means, collectively, Account No. 550-09500 maintained at the Lender, and one or more accounts of the Borrower at the Lender (or a securities intermediary acceptable to the Lender) which accounts (a) are accounts in which the Lender holds a first priority security interest and (b) hold Pledged Securities and proceeds thereof.

“Prime Rate” shall mean a fluctuating rate per annum equal to the rate of interest publicly announced by the Lender at its principal office from time to time as its prime rate or base rate. Any change in the Prime Rate shall be effective on the date such change is announced by the Lender.

“Quarterly Financial Statements” means financial information regarding the Borrower consisting of an unaudited balance sheet as of the close of the fiscal quarter most recently ended and the related statements of income and cash flow for such quarter and that portion of the fiscal year ending as of the close of such quarter, in each case certified by a senior officer of the Borrower as fairly presenting the financial position of the Borrower as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).

“Rate Hedging Agreement” means all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and interest rate insurance, foreign exchange contracts, currency swap or option agreements, forward contracts, commodity swap, purchase or option agreements, other commodity price hedging arrangements and all other similar agreements or arrangements designed to alter the risks of any Person arising from fluctuations in interest rates, currency values or commodity prices.

“Reimbursement Obligations” means, with respect to the Borrower at any time, all matured reimbursement or repayment obligations of the Borrower to the Lender at such time with respect to amounts drawn under Letters of Credit issued for the account of the Borrower.

“Reimbursement Date” has the meaning specified in Section 2.2.

“Responsible Party” means for any Governmental Plan Investor, (a) if the state under which such Governmental Plan Investor operates is obligated to fund the Governmental

 

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Plan Investor and is liable for any fund shortfalls, such state, and (b) otherwise, the Governmental Plan Investor itself.

“Securities Act” means the Securities Act of 1933, as amended.

“Security Agreement” means the Pledge and Security Agreement, in form and substance satisfactory to the Lender, entered into between the Borrower and the Lender on the date hereof.

“Security Documents” means the Security Agreement and any other agreement creating or perfecting a Lien on the assets of the Borrower in favor of the Lender.

“Solvent” means, with respect to any Person, that the value of the assets of such Person (both at fair value and present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and does not have unreasonably small capital. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Tax Returns” means the federal and state tax returns of the Obligors.

“Total Assets” of the Borrower means, at any date, total assets of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) at such date minus any Securities issued by the Borrower held as treasury securities.

“Total Liabilities” of the Borrower means, at any date, all obligations that would be included in determining total liabilities as shown on the liabilities side of a consolidated balance sheet of the Borrower and its subsidiaries (other than the Excluded Subsidiaries) at such date.

“Trademark License” means any agreement, whether written or oral, providing for the grant by or to the Borrower of any right to use any Trademark.

“Trademarks” means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and, in each case, all goodwill associated therewith, whether now existing or hereafter adopted or acquired, all registrations and recordings thereof and all applications in connection therewith, in each case whether in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common-law rights related thereto, and (b) the right to obtain all renewals thereof.

“Transactions” means the execution, delivery, and performance by the Obligors of the Credit Documents, the borrowing and repayment of the Loans, the pledge, assignments or grant of the security interests in the Collateral pursuant to the Credit Documents, the payment of interest and fees thereunder and the use of the proceeds of the Loans.

 

 

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Section 1.2. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes,” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof,” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, and Schedules shall be construed to refer to Articles and Sections of, and Schedules to, this Agreement and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and general intangibles.

Section 1.3. Specified Times and Dates; Determinations. All times specified in this Agreement shall be determined, unless stated specifically herein to the contrary, on the basis of the prevailing time in New York City. Unless stated specifically herein to the contrary, if any day or date specified in this Agreement for any notice, action or event is not a Business Day, then the due date for such notice, action or event shall be extended to the immediately succeeding Business Day; provided, however, that interest shall accrue on any payments due by the Borrower which are extended by the operation of this Section 1.3. Any determination by the Lender hereunder relating to the calculation of amounts hereunder shall, in the absence of manifest error, be conclusive and binding.

ARTICLE II: THE LOANS

Section 2.1. Loans.

(a)          Loans. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Lender hereby agrees to make Loans to the Borrower at any time and from time to time, on any Business Day on or after the Closing Date and prior to the Final Maturity Date in an aggregate principal amount at any time outstanding not to exceed the amount of the Commitment; provided, however, that at no time shall the Lender be obligated to make a Loan to the Borrower that would exceed the Available Credit at such time. Amounts of Loans repaid may be reborrowed from time to time under this Section 2.1.

(b)          Borrowing Procedure. All requests for Loans shall be made by the Borrower by delivering a borrowing request to the Lender in writing (such request a “Notice of Borrowing”) at least one Business Day (or such shorter period as shall be agreed to by the Lender) before the requested borrowing date for each Loan. Such Notice of Borrowing shall be irrevocable and shall specify (i) the requested borrowing date (which shall be a Business Day) and (ii) the amount of such Loan.

 

 

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Section 2.2. Letters of Credit.

(a)          Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Lender agrees to Issue at the request of the Borrower and for the account of the Borrower one or more Letters of Credit from time to time on any Business Day during the period commencing on the Closing Date and ending Final Maturity Date; provided, however, that the Lender shall not be under any obligation to Issue any Letter of Credit for the account of the Borrower upon the occurrence of any of the following: (i) after giving effect to the Issuance of such Letter of Credit, the aggregate Outstandings at such time would exceed the Maximum Credit at such time; (ii) after giving effect to the Issuance of such Letter of Credit, the sum of (A) the Letter of Credit Undrawn Amounts of the Borrower at such time and (B) the Reimbursement Obligations of the Borrower at such time exceeds $27,000,000; (iii) any fees due in connection with a requested Issuance have not been paid; (iv) such Letter of Credit is requested to be Issued in a form that is not acceptable to the Lender; or (v) such Letter of Credit is requested to be denominated in any currency other than United States Dollars.

(b)          In no event shall the expiration date of any Letter of Credit (i) be more than one year after the date of issuance thereof or (ii) be less than 30 days prior to the Final Maturity Date; provided, however, that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the expiry date referred to in clause (ii) above).

(c)          In connection with the Issuance of each Letter of Credit, the Borrower shall give the Lender at least three Business Days’ prior written notice (in such form as is acceptable to the Lender), of the requested Issuance of such Letter of Credit (a “Letter of Credit Request”). Such Letter of Credit Request shall be irrevocable and shall specify the date of Issuance of such requested Letter of Credit, the date on which such Letter of Credit is to expire (which date shall be a Business Day) and the Person for whose benefit the requested Letter of Credit is to be issued. Such notice, to be effective, must be received by the Lender not later than 11:00 a.m. on the third Business Day prior to the requested Issuance of such Letter of Credit.

(d)          Subject to the satisfaction of the conditions set forth in this Section 2.2, the Lender shall, on the requested date, Issue a Letter of Credit on behalf of the Borrower in accordance with the Lender’s usual and customary business practices.

(e)          If requested by the Lender, prior to the issuance of each Letter of Credit by the Lender and as a condition of such Issuance, the Borrower shall have delivered to the Lender a letter of credit reimbursement agreement, in such form as the Lender may employ in its ordinary course of business for its own account (a “Letter of Credit Reimbursement Agreement”), signed by the Borrower, and such other documents or items as may be required pursuant to the terms thereof. In the event of any conflict between the terms of any Letter of Credit Reimbursement Agreement and this Agreement, the terms of this Agreement shall govern.

(f)           The Borrower agrees to pay to the Lender the amount of all Reimbursement Obligations of the Borrower owing to the Lender under such Letter of Credit no later than the date that is the next succeeding Business Day after the Borrower receives written notice from the Lender that payment has been made under such Letter of Credit (the

 

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“Reimbursement Date”), irrespective of any claim, set-off, defense or other right that the Borrower may have at any time against the Lender or any other Person. In the event that the Lender makes any payment under any Letter of Credit and the Borrower shall not have repaid such amount to the Lender pursuant to this clause (g) or any such payment by the Borrower is rescinded or set aside for any reason, such Reimbursement Obligation shall be payable on demand with interest thereon computed (i) from the date on which such Reimbursement Obligation arose to the Reimbursement Date at the Prime Rate and (ii) from the Reimbursement Date until the date of repayment in full, at the rate of interest applicable during such period to past due Loans.

(g)          The Borrower’s obligation to pay its Reimbursement Obligations shall be absolute, unconditional and irrevocable, under any and all circumstances whatsoever, including the occurrence of any Default or Event of Default, and irrespective of any of the following: (i) any lack of validity or enforceability of any Letter of Credit or any Credit Document, or any term or provision therein; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or any Credit Document; (iii) the existence of any claim, set off, defense or other right that the Borrower, any other party guaranteeing, or otherwise obligated with, the Borrower, any subsidiary or other Affiliate thereof or any other Person may at any time have against the beneficiary under any Letter of Credit, the Lender or any other Person, whether in connection with this Agreement, any other Credit Document or any other related or unrelated agreement or transaction; (iv) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (v) payment by the Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and (vi) any other act or omission to act or delay of any kind of the Lender, the Lender or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.2, constitute a legal or equitable discharge of the Borrower’s obligations hereunder.

(h)          Any action taken or omitted to be taken by the Lender under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not put the Lender under any resulting liability to the Borrower. In determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof, the Lender may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary and, in making any payment under any Letter of Credit, the Lender may rely exclusively on the documents presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect, if such document on its face appears to be in order, and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever, and any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute willful misconduct or gross negligence of the Lender.

 

 

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(i)           Schedule II contains a schedule of certain letters of credit issued prior to the Closing Date by the Lender for the account of the Borrower. On the Closing Date, (i) such letters of credit, to the extent outstanding, shall be automatically and without further action by the parties thereto converted to Letters of Credit issued pursuant to this Section 2.2 for the account of the applicable Borrower and subject to the provisions hereof, and for this purpose the fees specified in Section 2.4 shall be payable (in substitution for any fees set forth in the applicable letter of credit reimbursement agreements or applications relating to such letters of credit) as if such letters of credit had been issued on the Closing Date, and (ii) all liabilities of the Borrower with respect to such letters of credit shall constitute Obligations.

(j)           If requested by the Lender during the continuance of a Default or Event of Default, the Borrower shall make cash deposits into the Cash Collateral Account as cash collateral for Letter of Credit Undrawn Amounts (or provide other Collateral acceptable to the Lender in its sole discretion) in an amount equal to 105% of the amount of such Letter of Credit Undrawn Amounts.

Section 2.3. Repayment of Loans. Any principal of any Loan not previously paid shall be payable on the Final Maturity Date.

Section 2.4. Interest; Fees.

(a)          Loans. The Loans shall bear interest on the unpaid principal amount thereof from the borrowing date thereof until payment in full thereof. Interest shall be payable in arrears (i) on the last day of each calendar quarter commencing on the first such Business Day following the Closing Date and (ii) on the Final Maturity Date. In addition, to the extent not already paid, interest shall also be payable in arrears on the date of each prepayment (on the principal amount prepaid) and on the Final Maturity Date.

(b)          Interest Rate. All Loans and the outstanding amount of all other Obligations shall bear interest, in the case of Loans, on the unpaid principal amount thereof from the date such Loans are made and, in the case of such other Obligations, from the date such other Obligations are due and payable until, in all cases, paid in full, except as otherwise provided in clause (d) below, at the option of the Borrower (as provided in clause (d) below), as follows:

 

(i)

at the Prime Rate as in effect from time to time; or

(ii)          at a rate per annum equal to the sum of (A) LIBOR and (B) the Margin.

(c)          Interest Calculations. Interest shall be calculated on the basis of a year of 360 days. In computing interest on the Loans (or interest on such interest), the date of the making of the Loans shall be included and the date of payment of the Loans shall be excluded.

(d)          Duration of Interest Periods. The Borrower may specify in a notice to the Lender either (i) the duration of each Interest Period applicable to (A) any Loans being requested pursuant to Section 2.1(b) and (B) any Loans for which the Interest Period shall expire prior to the Final Maturity Date or (ii) any Loans that are to bear interest at the Prime rate. Any such notice shall be delivered to the Lender in writing at least three Business Days (or such shorter

 

16

 


period as shall be agreed to by the Lender) before the borrowing date or the expiration of then current Interest Period, as the case may be. If the Borrower shall fail to deliver any such notice or after the occurrence and during the continuation of any Event of Default, the Lender may, in its sole discretion, designate the duration of the Interest Period for such Loans or designate such Loan or Loans as bearing interest at the Prime Rate.

(e)          Default Interest. After the occurrence and during the continuance of an Event of Default, to the extent permitted by applicable law, the Borrower shall pay on demand, on the principal amount of the outstanding Loans, interest at a rate per annum equal to 2% per annum plus the higher of (i) the Prime Rate and (ii) the interest rate applicable to the Loans.

(f)           Maximum Interest Rate. Notwithstanding anything herein to the contrary, in no event shall the interest charged hereunder exceed the maximum rate of interest permitted under applicable law. Any payment made which if treated as interest would cause the interest charged to exceed the maximum rate permitted shall instead be held by the Lender to the extent of such excess as Additional Collateral hereunder and applied to future interest payments as and when such amount becomes due and payable hereunder.

(g)          Letter of Credit Fee. The Borrower agrees to pay to the Lender the following amounts with respect to Letters of Credit issued by the Lender for the account of the Borrower (i) with respect to each Letter of Credit, an issuance fee equal to 1.25% per annum of the Letter of Credit Undrawn Amount of such Letter of Credit, payable in arrears on the first Business Day of each calendar month, commencing on the first such Business Day following the issuance of such Letter of Credit and on the Final Maturity Date; provided, however, that during the continuance of an Event of Default, such fee shall be increased by 2% per annum and shall be payable on demand; and (ii) with respect to the issuance, amendment or transfer of each Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with the Lender’s standard schedule for such charges in effect at the time of issuance, amendment, transfer or drawing, as the case may be.

(h)          Commitment Fee. The Borrower agrees to pay to the Lender a commitment fee equal to $250,000, payable on the Closing Date.

Section 2.5. Prepayment of Loans.

 

(a)

Prepayment; Commitment Reduction.

(i)           Optional. The Borrower shall have the right to prepay the Loans at any time in whole or from time to time in part.

(ii)          Mandatory Commitment Reduction. The Commitments shall automatically and permanently reduced by an amount equal to $50,000,000 on March 31, 2006.

(iii)         Over-advance Mandatory. If at any time the principal amount of the Loan exceeds the Maximum Credit (including as a result of the reduction in Commitment pursuant to clause (ii) above), the Borrower shall prepay the Loans to the

 

17

 


extent of such excess, within two Business Days after the Borrower first becomes aware of such excess.

(b)          Notices. Any prepayment pursuant to Section 2.5(a)(i) may only be made on at least two Business Days’ (or such shorter period as shall be agreed to by the Lender) irrevocable prior written notice to the Lender.

(c)          Breakfunding Costs. In the event the Borrower prepays all or any portion of the Loans, whether as a result of acceleration or otherwise, the Borrower will pay to the Lender, a break funding charge to cover loss, cost and expense attributable to such an event ("Breakfunding Costs"). Breakfunding Costs shall be deemed to include but not be limited to an amount determined by the Lender as follows: (i) calculate the Lender’s remaining interest cost based on (A) LIBOR then applicable to the Loan or Loans being prepaid, times (B) the principal amount of the prepayment, amortized accordingly, times (C) the remaining period of time until the end of the Interest Period applicable to the Loan or Loans being prepaid, dayweighted accordingly; (ii) calculate the Lender’s implied reinvestment rate based on (A) the U.S. Treasury rate as of the prepayment date for a period approximately equal to the period from the prepayment date until the end of the Interest Period applicable to the Loan or Loans being prepaid, times (B) the principal amount of the prepayment amortized accordingly, times (C) the remaining period of time until the end of the Interest Period applicable to the Loan or Loans being prepaid, dayweighted accordingly; and (iii) if the amount calculated pursuant to clause (ii) is equal to or greater than the amount calculated pursuant to (i), the Breakfunding Costs will be zero ($0), and if the amount calculated pursuant to (i) exceeds the amount calculated pursuant to clause (ii), the Breakfunding Costs will be calculated using the Lender’s discounted cash flow formula to determine the present value of the excess of the amount calculated pursuant to clause (i) less the amount calculated pursuant to clause (ii). Breakfunding Costs shall be payable to the Lender on the prepayment date of any Loan to the extent requested by the Lender prior to such prepayment date; provided, however, that any Breakfunding Costs which are not determinable or which, for any other reason, are not requested prior to such prepayment date shall be paid by the Borrower thereafter promptly upon receipt by the Borrower from the Lender of a request therefor, which request shall be made within 30 days of the date of such prepayment. Such Breakfunding Costs shall be specified in a certificate delivered by the Lender which sets out in reasonable detail the basis therefor.

Section 2.6. Note. The Loans made by the Lender to the Borrower shall be evidenced by one or more Notes, in form satisfactory to the Lender and duly executed by or on behalf of the Borrower, delivered and payable to the Lender in an aggregate principal amount equal to the Commitment. Additional terms and conditions relating to the Loans are set forth in the Note. Each Note is hereby referenced and incorporated herein as if set forth in their entirety. The Lender shall maintain its records to reflect the amount and date of the Loans and of each payment of principal and interest thereon. All such records shall, absent manifest error, be conclusive as to the outstanding principal amount hereof; provided, however, that the failure to make any notation to the Lender’s records shall not limit or otherwise affect the obligations of the Borrower to repay the Loans.

Section 2.7. Payments. All payments by the Borrower shall be payable on the due date thereof, in immediately available funds in Dollars, without any setoff, counterclaim,

 

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withholding or deduction of any kind. The Borrower hereby authorizes the Lender to charge any of the Borrower’s accounts for payments of principal, interest, fees and other amounts due hereunder. All payments shall be applied by the Lender as follows: first, to the payment of all accrued but unpaid fees, costs or expenses under the Credit Documents; second, to the payment of all accrued but unpaid interest under the Credit documents; third, to the repayment of then outstanding principal amount of the Loans in the order, from first to last, in which such Loans were made; fourth, to the repayment of Reimbursement Obligations; fifth, during the continuance of an Event of Default, to the cash collateralization of any Letter of Credit Undrawn Amounts until 105% of the amount of such Letter of Credit Undrawn Amounts shall have been cash collateralized, and sixth, the balance, if any, to the Borrower or to whomsoever may be entitled to such amounts as determined by the Lender in its reasonable discretion.

Section 2.8. Collateral. The Obligations of the Borrower under the Credit Documents shall be secured by the following collateral (“Collateral”): (i) a first priority perfected Lien on all of the Borrower’s Accounts, (ii) a first priority perfected Lien on all of the Pledged License Rights, (iii) a first priority perfected Lien on all Marvel Stock owned by the Borrower that have been repurchased by the Borrower after the Closing Date, (iv) a pledge of the Cash Deposits and the Cash Collateral Account pursuant to the Security Agreement and (v) such additional assets pledged to, or with respect to which a Lien is granted to, the Lender by the Borrower from time to time after the Closing Date.

Section 2.9. Illegality. If the Lender determines at any time that any law or regulation or any change therein or in the interpretation or application thereof makes or will make it unlawful for the Lender to maintain the Loans or to claim or receive any amount payable to it hereunder based on LIBOR, the Lender shall give notice of such determination to the Borrower, whereupon the Loans shall thereafter bear interest at the Prime Rate.

Section 2.10. Capital Adequacy. If the Lender shall have determined that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law, but if not having the force of law, the compliance with which is in accordance with the general practice of the Lender for borrowers similarly situated to the Borrower with respect to extensions of credit of the type contemplated by this Agreement) of any such Governmental Authority has or would have the effect of reducing the rate of return on the capital of the Lender (or any Person controlling the Lender (its “Parent”)) as a consequence of the Lender’s obligations hereunder to a level below that which the Lender (or its Parent) could have achieved but for such adoption, change or compliance (taking into consideration the Lender’s policies with respect to capital adequacy) by an amount deemed by the Lender to be material, then from time to time, within 15 days after demand by the Lender, the Borrower shall pay to the Lender (or its Parent, as the case may be) such additional amount or amounts as will compensate the Lender (or its Parent, as the case may be) for such reduction. The Lender agrees that it will not request payment from the Borrower under this Section 2.10 unless it makes a request for payment from all of the Lender’s similarly situated customers under provisions of the type described in this Section 2.10.

 

 

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Section 2.11. Taxes. (a) Any and all payments made by the Borrower hereunder shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto to the extent attributable to the Loans or the Collateral, excluding (i) taxes imposed on net income and (ii) all income and franchise taxes of the United States of America, any political subdivisions thereof, and any state of the United States of America, and any political subdivisions thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). (b) If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Within 30 days after the date of any payment of Taxes, the Borrower will furnish the Lender with evidence of payment thereof. The Borrower hereby indemnifies the Lender for the full amount of Taxes (including, without limitation, any Taxes imposed by any jurisdiction on amounts payable under this Section) paid by the Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. Payment pursuant to this indemnification shall be made upon written demand thereof. The obligations of the Borrower under this paragraph shall survive the termination of this Agreement.

ARTICLE III: REPRESENTATIONS AND WARRANTIES

Each Obligor represents and warrants to the Lender on the date hereof and on the date of the making of each Loan that:

Section 3.1. Organization; Powers; Authorization; Enforceability, Etc. Each Obligor is duly organized or formed, validly existing and in good standing (if and to the extent applicable) under the laws of the jurisdiction of its organization or formation, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in every jurisdiction where such qualification is required. The Transactions are within the powers of each Obligor and have been duly authorized by all necessary corporate action. Each Credit Document has been duly executed and delivered by each Obligor party hereto and constitutes a legal, valid and binding obligation of such Obligor enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, (b) will not violate any applicable law or regulation or the charter, by-laws, trust agreement or other organizational documents of any Obligor or any order of any Governmental Authority binding on such Obligor, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Obligor or its assets, or give rise to a right thereunder to require any payment to be made by such Obligor to the extent that such violation, or such default or right to payment could be reasonably expected to result in a Material Adverse Effect, and (d) will not result in the creation

 

20

 


or imposition of any Lien on any asset of any Obligor other than pursuant to the Credit Documents. There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Obligor, threatened against or affecting any Obligor (i) as to which there is a reasonable possibility of an adverse determination or that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve the Credit Documents, the Collateral or the Transactions. Each Obligor is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, to the extent that any noncompliance therewith could be reasonably expected to result in a Material Adverse Effect. No Default has occurred and is continuing.

Section 3.2. Investment and Holding Company Status. No Obligor nor any of its subsidiaries is (a) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

Section 3.3. Security Interests; Certain Information. The Lender has a valid and perfected first priority Lien on all of the Collateral and all filings and other actions necessary for the perfection and first priority status of such Liens have been duly made or taken and remain in full force and effect. The state of organization and any names used within the past five years of each Obligor is set forth on Schedule III. Each Obligor has set forth on Schedule III its place of business, if it has only one place of business, or its chief executive office, if it has more than one place of business.

Section 3.4. Financial Condition; No Material Adverse Change. The Financial Statements delivered to the Lender prior to the Closing Date and those delivered pursuant to Section 5.1(a) present fairly the financial condition of each Obligor identified therein as of the date thereof. Since June 30, 2005, there has been no Material Adverse Effect.

Section 3.5. Taxes.

(a)          Each Obligor has timely filed or caused to be filed all tax returns and reports required to have been filed (giving effect to any extensions) and has paid or caused to be paid all taxes required to have been paid by it, except taxes that are being contested in compliance with Section 5.7. The Tax Returns delivered to the Lender prior to the Closing Date are the true, correct and complete tax returns of each Obligor identified therein as of the date thereof.

(b)          No Obligor intends to, and no Obligor shall, treat the Loans and related transactions as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4). In the event any Obligor determine to take any action inconsistent with such intention or treatment, (i) such Obligor will promptly notify the Lender thereof and (ii) each Obligor acknowledges that the Lender may treat the Loans as part of a transaction that is subject to Internal Revenue Code Section 6112 and the Treasury Regulations thereunder, and that the Lender may file such IRS forms or maintain such lists and other records to the extent required by such statute and regulations. No part of the proceeds of any Loan will be used directly or

 

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indirectly in connection with any “listed transaction” (within the meaning of Treasury Regulation Section 1.6011–4(b)(2)).

Section 3.6. Disclosure. All agreements, instruments and corporate or other restrictions, and all other matters known to any Obligor pertaining to such Obligor (and not generally to general economic conditions), that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect have been disclosed to the Lender. None of the written reports, financial statements, certificates or other written information (other than financial projections and pro forma information) furnished by or on behalf of any Obligor to the Lender in connection with the negotiation of the Credit Documents or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 3.7. Solvency. On each of the Closing Date and the date of the making of each Loan hereunder, after giving effect to the transactions contemplated by the Credit Documents occurring on such date, each Obligor will be Solvent.

Section 3.8. Licenses. Each Obligor has obtained and holds in full force and effect, all material franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other consents and approvals which are necessary for the operation of its business as presently conducted, the absence of which is likely to have a Material Adverse Effect.

Section 3.9. ERISA. Each Obligor is in compliance with the provisions of ERISA, if applicable, except where any non-compliance could not reasonably be expected to result in a Material Adverse Effect, and the Borrower does not have liabilities or obligations under ERISA that could reasonably be expect to have a Material Adverse Effect.

Section 3.10. Environmental Matters. The operations of each Obligor are and have been in compliance with all applicable federal, state or local environmental, health and safety statutes and regulations since their respective effective dates and, none of the operations of any Obligor is subject to any judicial or administrative proceeding alleging the violation of any federal, state or local environmental, health or safety statute or regulation or are the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any hazardous or toxic waste, substance or constituent, or of any other substance into the environment, except as could not reasonably be expected to result in a Material Adverse Effect. No Obligor has filed any notice under any federal, state or local law indicating past or present treatment, storage or disposal of a hazardous or toxic waste, substance or constituent, or other substance into the environment, and has no contingent liability in connection with any release of any hazardous or toxic waste, substance or constituent, or other substance into the environment.

Section 3.11. Title to Property. Each Obligor has good and marketable title to, or valid leasehold interests in, all real property and good title to all personal property, in each case, that is purported to be owned or leased by it, including those reflected on the most recent Financial Statements delivered by such Obligor, and none of such properties and assets is subject

 

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to any Lien, except Liens not prohibited by Section 5.12. Each Obligor has received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Obligor’s and its subsidiaries’ right, title and interest in and to all such property.

ARTICLE IV: CONDITIONS

Section 4.1. Closing Date. The obligations of the Lender to make any Loan to the Borrower, and to Issue any Letter of Credit, hereunder shall not become effective until each of the following conditions is satisfied:

 

(a)

The Lender shall have received the following documents:

 

 

(i)

a counterpart of this Agreement executed by each Obligor;

 

(ii)

the Note executed by the Borrower;

 

(iii)        the Security Agreement executed by each Obligor, together with each of the following:

(A)      evidence satisfactory to the Lender that, upon the filing and recording of instruments delivered at the Closing, the Lender shall have a valid and perfected first priority security interest in the Collateral, including (x) such documents duly executed by the Borrower with respect to the perfection of the Lender’s security interests in the Collateral and (y) copies of UCC search reports as of a recent date listing all effective financing statements that name the Borrower as debtor, together with copies of such financing statements, none of which shall cover the Collateral, except for those that shall be terminated on the Closing Date or are otherwise permitted hereunder;

(B)      share certificates representing all of the certificated securities being pledged pursuant to such Security Agreement and stock powers for such share certificates executed in blank;

(C)      all instruments being pledged pursuant to the Security Agreement duly endorsed in favor of the Lender or in blank; and

(D)      evidence satisfactory to the lender that it has a first priority perfected Lien on the Cash Collateral Account and the Pledged Securities Account;

 

(iv)

the Guaranty executed by the Guarantor;

(v)          a good standing certificate of each Obligor, certified by the Secretary of State of the State of Delaware;

 

 

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(vi)         a certificate of incorporation of each Obligor, certified by the Secretary of State of the State of Delaware;

(vii)       a certificate of the Secretary of each Obligor certifying as to (a) the bylaws of such Obligor, and (b) incumbency of officers signing the Credit Documents; and

(viii)      a form FRU-1 signed by the Borrower, satisfactory to the Lender, in form appropriate for filing with the Federal Reserve Board of the United States of America.

(b)          The Lender shall have received such documents, certificates and legal opinions, regarding each Obligor as to the organization or formation, existence and good standing of each Obligor, the authorization of the Transactions, the execution and delivery of the Credit Documents, and such other matters as may be requested by the Lender, in each case, in form and substance satisfactory to the Lender and its counsel.

Section 4.2. Additional Conditions to Loans and Letters of Credit. On each date on which any Loan is to be made or any Letter of Credit to be Issued: (a) the Lender shall have received a Notice of Borrowing for such Loan or received a Letter of Credit request for such Letter of Credit, in each case, executed by the Borrower; (b) the representations and warranties set forth in Article III hereof and in any documents delivered herewith, shall be true and correct with the same effect as though made on and as of such date; (c) the Lender shall be satisfied that no event has occurred which could have a Material Adverse Effect; (d) each Obligor shall be in compliance with all the terms and provisions contained herein and in the Credit Documents to be observed or performed; (e) no Default shall have occurred and be continuing; (f) the Borrower shall have delivered the borrowing base certificate required to be delivered by Section 5.1 (or, in the case of Loans and Letters of Credit Issued on the Closing Date, an initial borrowing base certificate), and the Borrower and the Lender shall each be satisfied with such borrowing base certificate (it being understood that the Borrower’s request for a Loan or Issuance shall be evidence of its satisfaction with the most recent borrowing base certificate delivered); (g) after giving effect to each Loan requested to be made and Letter of Credit requested to be Issued on any such date and the use of proceeds thereof, the Outstandings shall not exceed the Maximum Credit; (h) the making of such Loan or the Issuance of such Letter of Credit on such date does not violate any law, rule, regulation, order or decree on the date of or immediately following such Loan and is not enjoined, temporarily, preliminarily or permanently; and (i) the Lender shall have received such additional documents, information and materials as the Lender may reasonably request.

Each submission by the Borrower to the Lender of a Notice of Borrowing or Letter of Credit Request and the acceptance by the Borrower of the proceeds of each Loan or Letter of Credit requested therein shall be deemed to constitute a representation and warranty by the Borrower as to the matters specified in clause (b) and (e) above on the date of the making of such Loan.

 

 

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ARTICLE V: COVENANTS

Until the termination of the Commitment and the principal of and interest on the Loans and all fees and other Obligations payable under the Credit Documents remain outstanding, each Obligor covenants and agrees with the Lender that:

Section 5.1. Reporting Requirements. Each of the following shall be furnished to the Lender: (a) promptly and in any event within 90 days after the end of the calendar year, Annual Financial Statements for the fiscal year most recently ending; (b) promptly and in any event within 45 days after the end of each calendar quarter, Quarterly Financial Statements for the fiscal quarter most recently ending; (c) promptly and in any event within 5 days after the end of each calendar quarter, an aging of accounts receivable as of the last day of such fiscal quarter; (d) promptly and in any event within 30 days after the date of each filing, the Tax Returns; and (e) on the 15th and the 30th day of each calendar month, or if such day is not a Business Day, the first Business Day thereafter, a borrowing base certificate setting forth the Borrowing Base as of the next preceding Business Day, in the form and as required as set forth on Exhibit A. Promptly, upon any change of any of the information set forth in Schedule III, the Borrower shall deliver written notice to the Lender thereof.

Section 5.2. Financial Covenants

(a)          The Borrower shall at all times maintain a Leverage Ratio of not more than the 1.50 to 1.00.

(b)          The Borrower shall at all times maintain for the last 12 months Free Cash Flow of not less than $70,000,000.

(c)          The Net Worth of the Borrower shall at all times be greater than $250,000,000.

Section 5.3. Information and Notices. The Obligors will furnish or will cause to be furnished to the Lender promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Obligors, or compliance with the terms of the Credit Documents, as the Lender may reasonably request. The Obligors hereby agree to cooperate with the Lender and provide true, accurate and complete information in response to any reasonable request by the Lender to enable the Lender to comply with the requirements of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 Title III of Pub. L. 107-56 (signed into law October 26, 2001). The Borrower will furnish to the Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Obligor that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; and (c) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.

 

 

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Section 5.4. Books and Records; Inspection Rights; Access. Each Obligor will keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Each Obligor will permit any representatives designated by the Lender, during normal business hours and upon reasonable advance notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to directly discuss its affairs, finances and condition with its partners or trustees (or its designee), officers and independent accountants, as applicable.

Section 5.5. Existence; Payment of Obligations; Compliance with Laws. Each Obligor will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business. Each Obligor will pay its liabilities including tax liabilities, that, if not paid, could reasonably be expected to result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) each Obligor has set aside on its books adequate reserves with respect thereto and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. Each Obligor will comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.

Section 5.6. Conduct of Business. Each Obligor will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business.

Section 5.7. Payment of Obligations. Each Obligor will pay its liabilities, including tax liabilities, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) each Obligor has set aside on its books appropriate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment could not reasonably be expected to have a Material Adverse Effect.

Section 5.8. Maintenance of Properties; Insurance. Each Obligor will (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted and (b) maintain, with financially sound and reputable insurance companies, insurance in amounts and against risks as are customarily maintained by companies engaged in the same or similar business operating in the same or similar locations.

Section 5.9. Use of Proceeds. The proceeds of the Loans shall be used by each Obligor for the repurchase of Marvel Stock and/or for working capital and other general corporate purposes. No part of the proceeds of any Loan will be used directly or indirectly for any purpose which will violate Regulations T, U, or X of the Federal Reserve Board.

Section 5.10. Debt. No Obligor shall incur, create, or assume or otherwise become liable for any Debt, other than (a) the Obligations, (b) trade payables incurred in the ordinary course of business, (c) Debt under Rate Hedging Agreements, and (d) Debt set forth on Schedule IV.

 

 

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Section 5.11. Liens. No Obligor shall permit any Liens to exist on any of its properties, other than (a) Liens securing the Obligations, (b) Permitted Liens, and (C) Liens set forth on Schedule V.

Section 5.12. Asset Sales. No Obligor shall sell, convey, transfer, lease or otherwise dispose of, the Collateral or any interest therein to any Person, or permit or suffer any other Person to acquire any interest in any of the Collateral .

Section 5.13. Fundamental Changes. No Obligor shall (a) merge or consolidate with any other Person, or permit any other Person to merge or consolidate with it; (b) sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets (in each case, whether now owned or hereafter acquired); (c) distribute, sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) any Collateral, unless after giving effect to such distribution, sale, transfer, lease or disposition the Borrower shall be in pro forma compliance with Section 5.2; (d) enter into any agreement or undertaking restricting the right or ability of the Borrower or the Lender to sell, assign or transfer any of the Collateral or proceeds thereof; and (e) alter, amend, modify or change its articles or by-laws or any material agreement relating to the Pledged License Rights in any material respect without the written consent of the Lender.

Section 5.14. Further Assurances. Each Obligor shall upon request by the Lender (a) promptly correct any material defect or error that may be discovered in any Credit Document or in the execution, acknowledgement or recordation thereof and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, security agreements, pledge agreements, mortgages, deeds of trust, trust deeds, assignments, estoppel certificates, financing statements and continuation thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Lender may require from time to time in order to (i)  carry out more effectively the purposes of this Agreement or any other Credit Documents, (ii) subject to the Liens and security interests created by any of the Credit Documents, any of such Obligor’s properties, rights or interests covered or now or hereafter intended to be covered by any of the Credit Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Credit Documents and the Liens and security interests intended to be created thereby and (iv) better assure, convey, grant, assign, transfer, preserve, protect and confirm unto the Lender the rights granted or now or hereafter intended to be granted to the Lender under any Credit Document. The Lender shall upon request by the Borrower promptly correct any material defect or error that may be discovered in any Credit Document or in the execution, acknowledgement or recordation thereof.

ARTICLE VI: EVENTS OF DEFAULT

Section 6.1. If any of the following events (“Events of Default”) shall occur:

(a)          the Borrower shall fail to pay any principal of or interest on the Loans when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;

 

 

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(b)          the Borrower shall fail to pay any fee or any other amount (other than an amount referred to in clause (a) of this Section 6.1) payable under any Credit Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five days after the receipt of written notice of the date on which the same shall become due and payable (it being understood that invoices by the Lender to the Borrower shall constitute such written notice);

(c)          any representation or warranty made or deemed made by or on behalf of the Borrower in or in connection with any Credit Document or any amendment or modification thereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Credit Document or any amendment or modification hereof shall prove to have been incorrect in any material respect when made or deemed made;

(d)          any Obligor shall fail to observe or perform any covenant, condition or agreement (i) contained in Sections 5.1, 5.2 or 5.14 and such failure shall be unremedied for a period of five days after notice thereof from the Lender to the Borrower or (ii) contained in any of Sections 5.6 through 5.13, and such failure shall be unremedied for a period of five days from the date of such failure;

(e)          any Obligor shall fail to observe or perform any covenant, condition or agreement contained in any Credit Document (other than those specified in clause (a), (b), (c) or (d) of this Section 6.1), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Lender to the Borrower;

(f)           any Obligor shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable, after the expiration of any grace or cure periods;

(g)          any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this clause (g) shall not apply to secured indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such indebtedness;

(h)          an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Obligor or their debts, or of a substantial part of their assets, under any federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Obligor or for a substantial part of their assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;

(i)           any Obligor shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or foreign

 

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bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Section 6.1, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Obligor or for a substantial part of their assets, (iv) file an answer admitting the material allegations of a petition filed against them in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

(j)           any Obligor shall become unable, admit in writing or fail generally to pay their debts as they become due;

(k)          one or more judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against any Obligor or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Obligor to enforce any such judgment;

(l)           any material provision of any Credit Document shall, for any reason, cease to be valid and binding on any Obligor, or any Obligor shall so state in writing; or any Credit Document shall, for any reason, cease to create a valid Lien on any of the Collateral purported to be covered thereby or any Lien granted to the Lender shall cease to be a perfected first priority Lien, or any Obligor shall so state in writing;

 

(m)

there shall have occurred any event that has a Material Adverse Effect;

then, and in every such event (other than an event with respect to any Obligor described in clause (h) or (i) of this Section 6.1), and at any time thereafter during the continuance of such event, the Lender may by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitment, and thereupon the Commitment shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other Obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Section 6.1, the Commitment shall automatically terminate, the Borrower shall be obligated to post cash collateral as set forth in Section 2.2(j), and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other Obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

ARTICLE VII: MISCELLANEOUS

Section 7.1. Notices. All notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by U.S. mail (return receipt requested) or sent by telecopy (with confirmed receipt or followed by

 

29

 


overnight delivery) to the addresses (or telecopy numbers) set forth on the signature pages hereof. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 7.2. Amendment and Waiver. No alteration, modification, amendment or waiver of any terms and conditions of any of the Credit Documents shall be effective or enforceable against the Lender unless set forth in a writing signed by the Lender. Without limiting the generality of the foregoing, the making of each Loan shall not be construed as a waiver of any Default, regardless of whether the Lender may have had notice or knowledge of such Default at the time.

Section 7.3. Expenses; Indemnity; Damage Waiver.

(a)          The Borrower shall pay all reasonable out-of-pocket expenses incurred by the Lender, including but not limited to fees and disbursements of counsel for the Lender, in connection with the negotiation and preparation of any Credit Documents, any amendments, modifications or waivers of the provisions thereto requested or agreed to by the Borrower (whether or not the transactions contemplated hereby or thereby shall be consummated), the addition or release of any collateral or the enforcement or protection of the Lender’s rights in connection with any Credit Document, including its rights under this Section in connection with the Loans made hereunder or any workout, restructuring or negotiations in respect thereof. The Borrower hereby authorizes and directs the Lender to pay any legal fees relating to this Agreement from the proceeds of any borrowings hereunder and any accounts of the Borrower maintained with the Lender.

(b)          Each Obligor shall indemnify, jointly and severally, the Lender and each Affiliate, director, officer, employee, agent and advisor thereof (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable fees and disbursements of counsel for any Indemnitee (the “Losses”), incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of, any actual or prospective claim, litigation, investigation or proceeding relating to (i) the execution or delivery of any Credit Document, the performance of the parties hereto of their respective Obligations thereunder or the consummation of the Transactions or (ii) the Loans or the use of the proceeds therefrom, in each case, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such Losses are determined by a final judgment of a court of competent jurisdiction to have been incurred by reason of gross negligence, bad faith or willful misconduct of such Indemnitee; and provided further that the Lender shall give each Obligor prompt notice of any claims for which indemnification is or will be sought under this section and each Obligor shall control the defense of such claims, with the Indemnitee entitled to participate with its own counsel at its own expense. No settlement affecting the rights of the Indemnitee shall be made without the Indemnitee’s consent, such consent not to be unreasonably withheld.

 

 

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(c)          To the extent permitted by applicable law, no Obligor shall assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, any Credit Document or any agreement or instrument contemplated thereby, the Transactions, each Loan or the use of the proceeds thereof.

(d)          All amounts due under this Section shall be payable promptly after written demand therefor. The Obligations of the Obligors under this Section shall survive payment in full of the Loans.

Section 7.4. Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no Obligor may assign or otherwise transfer any of its rights or Obligations hereunder and any attempted assignment or transfer by any Obligor shall be null and void.

Section 7.5. Survival. All covenants, agreements, representations and warranties made by any Obligor in any Credit Document and in the certificates or other instruments delivered in connection with or pursuant to any Credit Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of each Credit Document and the making of the Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on the Loans or any fee or any other amount payable under any Credit Document is outstanding and unpaid. The provisions of Section 7.3 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans or the termination of this Agreement or any provision hereof.

Section 7.6. Right of Setoff. If any amount payable hereunder or under any other Credit Document is not paid as and when due, each Obligor hereby authorizes the Lender and each affiliate of the Lender to proceed, to the extent permitted by applicable law, without prior notice, by right of setoff, bankers’ lien, counterclaim or otherwise, against any assets of such Obligor in any currency that may at any time be in the possession of the Lender or such affiliate, at any branch or office, to the full extent of all amounts payable to the Lender hereunder or thereunder. The Lender shall give prompt notice to the Borrower and the applicable Obligor after any exercise of the Lender’s rights under the preceding sentence, but the failure to give such notice shall not affect the validity of any of the Lender’s actions.

Section 7.7. Severability. Any provision of any Credit Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

 

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Section 7.8. Governing Law; Jurisdiction; Consent to Service of Process.

(a)          This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

(b)          EACH OBLIGOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS CREDIT AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT ANY CREDIT DOCUMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OBLIGOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, EACH OBLIGOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH ANY CREDIT DOCUMENT.

(c)          Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 7.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

Section 7.9. Headings. Article and Section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 7.10. Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or of any other Credit Document by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement or of such other Credit Document.

Section 7.11. No Reliance. Each Obligor acknowledges that it is making its own independent decision to enter into the transactions under the Credit Documents and has determined that such transactions are appropriate and proper based upon its own judgment and upon advice from such advisers as it has deemed necessary. Each Obligor acknowledges that it is not relying on any communication (written or oral) from any Indemnitee (as defined in Section

 

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7.3(b)) as investment or tax advice or as a recommendation to enter into such transactions and specifically agrees and acknowledges that any information and explanation relating to the terms and conditions of such transactions shall not be considered investment or tax advice or a recommendation from any Indemnitee to enter into such transactions. No communication (written or oral) from any Indemnitee regarding such transactions shall be deemed to be an assurance or guarantee as to the expected results, benefits, outcomes or characteristics (economic, tax or otherwise) of such transactions. Each Obligor acknowledges that it is capable of assessing the merits of and understands (on its own behalf or through independent professional advice), and accepts, the terms, conditions and risks of such transactions and that it is also capable of assuming and assumes the risks of such transactions. Each Obligor acknowledges that no Indemnitee is acting as a fiduciary or an adviser to any Obligor in respect of such transactions.

Section 7.12. Tax Disclosure. Notwithstanding anything herein to the contrary, each party may disclose without limitation of any kind (a) any information with respect to the U.S. federal and state income tax treatment of the transactions contemplated hereby and any facts that may be relevant to understanding such tax treatment, which facts shall not include for this purpose the names of the parties or any other Person named herein, or information that would permit identification of the parties or such other Persons, or any pricing terms or other nonpublic business or financial information that is unrelated to such tax treatment or facts and (b) all materials of any kind (including opinions or other tax analyses) relating to such tax treatment or facts that are provided to any of the Persons referred to above.

Remainder of Page Intentionally Left Blank

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

BORROWER:

 

MARVEL ENTERTAINMENT, INC.

 

 

By /s/ Kenneth P. West

      Name  Kenneth P. West

      Title:  Executive Vice President and
      Chief Financial Officer

 

 

Notice Address for The Borrower:

 

ADDITIONAL OBLIGOR(S):

 

MARVEL CHARACTERS, INC.

 

 

By /s/ Kenneth P. West

      Name  Kenneth P. West

      Title:  Treasurer

 

 

 

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LENDER:

 

HSBC BANK USA, NATIONAL ASSOCIATION

 

 

By /s/ Mary A. Pan

 

MARY A. PAN

 

 

SENIOR VICE PRESIDENT

 

Notice Address:

 

452 Fifth Avenue

New York, New York 10018

Attn: Mary A. Pan, Senior Vice President

Telephone: 212-525-5370

Facsimile: 212-525-6233

 

 

 

 

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 EX-10 8 ex10-6.htm EX. 10.6

 

Exhibit 10.6

 

 

PLEDGE AND SECURITY AGREEMENT

PLEDGE AND SECURITY AGREEMENT, dated as of November 9, 2005 (as amended, supplemented or modified from time to time, this “Agreement”), made by MARVEL ENTERTAINMENT, INC. (referred to herein as “Borrower” or a “Grantor”) and MARVEL CHARACTERS, INC. (referred to herein as a “Grantor” and collectively, with the Borrower, as “Grantors”) in favor of HSBC BANK USA, NATIONAL ASSOCIATION (“Secured Party”).

RECITALS

 

Pursuant to the Credit Agreement dated as of the date hereof (as amended, supplemented or modified from time to time, the “Credit Agreement” capitalized terms used but not defined herein shall have the meanings given such terms in the Credit Agreement) by and among Grantors and Secured Party, Secured Party has agreed to make the Loans to and Issue Letters of Credit for the account of Borrower. In order to induce Secured Party to make the Loans and Issue the Letters of Credit, Grantors have agreed to grant a continuing Lien on the Collateral to secure the Obligations (as hereinafter defined). Accordingly, Grantors hereby agree as follows:

 

1.

Security Interest.

(a)           Grant of Security. As security for the Obligations (as hereinafter defined), each Grantor hereby delivers, assigns, pledges, sets over and grants to Secured Party a first priority security interest in, all of its right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all items of its personal property described on Exhibit A hereto which is executed by an authorized person of such Grantor, together with all substitutions and replacements thereof and any products and proceeds thereof including any which are described on a supplement hereto in substantially the form of Exhibit B hereto (the “Collateral”).

(b)           Security for Obligations. This Agreement secures the payment of all now existing or hereafter arising obligations of Grantors to Secured Party, whether primary or secondary, direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise under the Credit Agreement or any other Credit Document (as defined in the Credit Agreement) including the Guaranty, whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys’ fees incurred in any collection efforts or in any action or proceeding (all such obligations being the “Obligations”).

(c)           Grantor Remains Liable. This Agreement shall not affect Grantors’ liability to perform all of its duties and obligations under the transactions giving rise to the Obligations. The exercise by Secured Party of any of the rights hereunder shall not release Grantors from any of its duties or obligations under the transactions giving rise to the Obligations, which shall remain unchanged as if this Agreement had not been executed. Secured Party shall not have any obligation or liability under the transactions giving rise to the Obligations by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

(d)           Supplement. From time to time Grantors may deliver, assign, pledge, set over and grant to Secured Party a first priority security interest in any additional items of personal property by delivering on a supplement hereto in substantially the form of Exhibit B hereto listing such items; thereafter, all such items of personal property shall be “Collateral” hereinafter and subject to the terms of this Agreement.

 

 


 

(e)           Continuing Agreement. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until payment in full of the Obligations.

2.            Title; Liens and Encumbrances. Each Grantor represents and warrants that it is (or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will be) the record and beneficial owner of, having (or to the extent that this Agreement states that the Collateral is to be acquired after the date hereof, will have) good and marketable title to, the Collateral pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other person, except the Liens created by this Agreement and each Grantor will promptly notify Secured Party of any such other Lien or claim made or asserted against the Collateral and will defend the Collateral against any such Lien or other claim.

3.            State of Organization or Residence; Legal Name. Each Grantor represents, warrants and covenants to Secured Party as follows:

(a)           Such Grantor’s state of organization is set forth on Schedule I to the Credit Agreement. Such Grantor shall promptly notify Secured Party of any change in the foregoing representation.

(b)           Such Grantor’s registered or legal name is as set forth on Schedule I to the Credit Agreement. Such Grantor currently uses, and during the last five years has used, no other names including business or trade names, except as set forth on Schedule II to the Credit Agreement. Such Grantor shall not change such name without providing Secured Party 30 days prior written notice.

(c)           Such Grantor’s organizational identification number is as set forth on Schedule II to the Credit Agreement. Such Grantor currently uses, and during the last five years has used, no other organizational identification numbers including any used by predecessors to such Grantor, except as set forth on Schedule II to the Credit Agreement. Such Grantor shall not change such organizational identification number without providing Secured Party 30 days prior written notice.

(d)           The grant of the security interest in the Collateral, combined with the filing of financing statements, the execution of control agreements, the execution of Assignments, and/or possession of the Collateral, each as appropriate, is effective to vest in Secured Party a valid and perfected first priority security interest, superior to the rights of any person in and to the Collateral as set forth herein.

4.            Perfection of Security Interest. Each Grantor authorizes Secured Party to file all such financing statements and amendments thereto pursuant to the Uniform Commercial Code as in effect in the State of New York as it may be amended, supplemented or modified from time to time (the “UCC”) or other notices appropriate under applicable law, as Secured Party may require, each in form satisfactory to Secured Party. Secured Party may transfer, withdraw or redeem any funds or other property in each deposit account or securities account constituting Collateral without further consent by Grantors; provided that Secured Party will not exercise any of such rights other than during an Event of Default. Grantors also shall pay all filing or recording costs with respect thereto, and all costs of filing or recording this Agreement or any other agreement or document executed and delivered pursuant hereto or to the Obligations (including the cost of all federal, state or local mortgage, documentary, stamp or other taxes), in each case, in all public offices where filing or recording is deemed by Secured Party to be necessary or desirable. Each Grantor authorizes Secured Party to take all other action which Secured Party may deem necessary or desirable to perfect or otherwise protect the Liens created hereunder and to obtain the benefits of this Agreement.

 

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5.            Covenants Relating to Collateral. Until the Obligations shall have been paid in full, all Letters of Credit Undrawn Amounts have been cash collateralized in accordance with the Credit Agreement, and the Credit Agreement shall have terminated, each Grantor covenants and agrees that if such Grantor shall become entitled to receive or shall receive any certificate (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Collateral consisting of securities, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Collateral consisting of securities, or otherwise in respect thereof, such Grantor shall accept the same as the agent of Secured Party, hold the same in trust for Secured Party and deliver the same forthwith to Secured Party in the exact form received, duly indorsed by such Grantor to Secured Party, if required, together with an undated assignment covering such certificate duly executed in blank by Grantor and with, if Secured Party so requests, signature guaranteed, to be held by Secured Party, subject to the terms thereof, as additional collateral security for the Obligations. If any of the foregoing property so distributed in respect of the Collateral consisting of securities shall be received by any Grantor, such Grantor shall, until such property is paid or delivered to Secured Party, hold such property in trust for Secured Party, segregated from other funds or property of such Grantor, as additional collateral security for the Obligations.

 

6.

Collections; Other Rights.

(a)           Except as provided herein, Grantors may receive all cash interest, dividends and distributions paid in respect of the Collateral consisting of securities, and to exercise all voting rights with respect to the Collateral consisting of securities; provided, however, that no vote shall be cast or right exercised or other action taken which, in Secured Party’s reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of this Agreement or any other Credit Document.

(b)           All of the foregoing amounts set forth in paragraph (a) of this Section 6 so collected after the occurrence of and during the continuation of an Event of Default shall be held in trust by Grantors for and as the property of Secured Party, and shall not be commingled with other funds, money or property of Grantors.

(c)           After the occurrence and during the continuation of an Event of Default, each Grantor will immediately upon receipt of all such checks, cash or other remittances constituting part of the Collateral or in payment for any Collateral sold, transferred, leased or otherwise disposed of, deliver any such items to Secured Party accompanied by a remittance report in form supplied or approved by Secured Party. Each Grantor shall deliver such items received by it in the same form received, endorsed or otherwise assigned by the applicable Grantor where necessary to permit collection of such items.

7.            Events of Default. The occurrence of any one or more Events of Default by any Obligor under the Credit Agreement shall constitute an event of default (“Event of Default”) under this Agreement.

7A.         Registration Rights. If after the occurrence and during the continuance of an Event of Default, in the opinion of the Lender it is necessary or advisable to have the Pledged Securities, or any portion thereof to be registered under the provisions of the Securities Act of 1933 (the “Securities Act”), the relevant Grantor shall cause (or, in the case of an issuer that is not a Subsidiary of the Borrower, use its best efforts in accordance with the instructions of the Lender to cause) the issuer thereof to (i) execute and deliver, and cause the directors and officers of such issuer to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Lender, necessary or advisable to register the Pledged Securities, or that portion thereof to be sold,

 

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under the provisions of the Securities Act, (ii) use its best efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of the Pledged Securities, or that portion thereof to be sold, (iii) make all amendments thereto or to the related prospectus that, in the opinion of the Lender, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto and (iv) comply with the provisions of the securities or “Blue Sky” laws of any jurisdiction that the Lender shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) satisfying the provisions of Section 11 (a) of the Securities Act. Each Grantor recognizes that the Lender may be unable to effect a public sale of any Pledged Securities by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise or may determine that a public sale is impracticable or not commercially reasonable and, accordingly, may resort to one or more private sales thereof to a restricted group of purchasers that shall be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Lender shall be under no obligation to delay a sale of any Pledged Securities for the period of time necessary to permit the issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such issuer would agree to do so. Each Grantor further agrees that a breach of any covenant contained in this Section 7A will cause irreparable injury to the Lender, that the Lender has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 7A shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defense against an action for specific performance of such covenants except for a defense that no Event of Default is continuing under the Credit Agreement. If any Grantor fails to perform or comply with any of the agreements contained in this Section 7A herein, the Lender, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with the agreements contained in this Section 7A. The Lender shall pay all reasonable costs and expenses incurred by the Borrower, including but not limited to fees and disbursements of counsel for the Borrower, in connection with the registration of the Pledged Securities as contemplated by this Section 7A.

 

 

8.

Rights and Remedies.

(a)           In the event of the occurrence and continuation of any Event of Default:  (i) Secured Party may exercise exclusive control over the Collateral; (ii) Secured Party shall have the right, with or without (to the extent permitted by applicable law) notice to any Grantor, as to any or all of the Collateral, by any available judicial procedure or without judicial process, to take possession of the Collateral and without liability for trespass to enter any premises where the Collateral may be located for the purpose of taking possession of or removing the Collateral, and generally to exercise any and all rights afforded to a secured party under the UCC or other applicable law; (iii) Secured Party shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, either at public or private sale or at any broker’s board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such terms and conditions, all as Secured Party in its sole discretion may deem advisable; (iv) at Secured Party’s request, Grantors shall assemble the Collateral and make it available to Secured Party at places which Secured Party shall select, whether at Grantors’ premises or elsewhere, and make available to Secured Party, without rent, all of Grantors’ premises and facilities for the purpose of Secured Party’s taking possession of, removing or putting the Collateral in saleable or disposable form; (v) Secured Party shall have the right to receive any and all cash interest, dividends, distributions, payments or other proceeds paid in respect of the Collateral and make application thereof to the Obligations in such order as

 

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Secured Party may determine; and (vi) any or all of the Collateral may be registered in the name of Secured Party or its nominee and they may thereafter exercise (x) all voting, corporate and other rights pertaining to such Collateral and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Collateral as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all securities or securities entitlements upon any merger, consolidation, reorganization, recapitalization or other fundamental change, or upon the exercise of Grantors or Secured Party of any right, privilege or option pertaining to such securities or securities entitlements, and in connection therewith, the right to deposit and deliver any and all of the securities or securities entitlements with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as Secured Party may determine), all without liability except to account for property actually received by it, but Secured Party shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.

(b)           Any such sale, lease or other disposition of Collateral may be made without demand for performance or any notice of advertisement whatsoever except that where an applicable statute requires reasonable notice of sale or other disposition, each Grantor agrees that the sending of five days notice by ordinary mail, postage prepaid, to such Grantor of the place and time of any public sale or of the time at which any private sale or other intended disposition is to be made, shall be deemed reasonable notice thereof. Notwithstanding the foregoing, if any of the Collateral may be materially diminished in value during such five-day period, Secured Party shall provide Grantors with such shorter notice as it deems reasonable under the circumstances.

(c)           The proceeds of any such sale, lease or other disposition of the Collateral shall be applied first to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like, and to the reasonable attorneys’ fees and legal expenses incurred by Secured Party, and then to satisfaction of the Obligations (in any order as Secured Party may decide in its sole discretion), to the payment of any other amounts required by applicable law, and then to the Borrower. If, upon the sale, lease or other disposition of the Collateral, the proceeds thereof are insufficient to pay all amounts to which Secured Party is legally entitled, Borrower will be liable for the deficiency, together with interest thereon, at the rate prescribed in the agreements giving rise to the Obligations, and the reasonable fees of any attorneys employed by Secured Party to collect such deficiency. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands against Secured Party arising out of the repossession, removal, retention or sale of the Collateral.

9.            Power of Attorney. Each Grantor authorizes Secured Party and does hereby make, constitute and appoint Secured Party, and any officer or agent of Secured Party, with full power of substitution, as such Grantor’s true and lawful attorney-in-fact, with power, in its own name or in the name of such Grantor:  (i) to endorse any notes, checks, drafts, money orders, or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of Secured Party; (ii) to pay or discharge any taxes, liens, security interest or other encumbrances at any time levied or placed on or threatened against the Collateral; (iii) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (iv) to take actions as provided in the penultimate sentence of Section 7A; (v) to exercise all membership rights, powers and privileges in connection with the Collateral to the same extent as such Grantor is entitled to exercise such rights, powers and privileges; and (vi) generally to do all acts and things which Secured Party deems necessary to protect, preserve and realize upon the Collateral and Secured Party’s security interest therein. Each Grantor hereby approves and ratifies all acts of said attorney or designee, who shall not be liable for any acts of commission or omission, nor for any error or judgment or mistake of fact or law except for its own gross negligence or willful misconduct. This power of attorney shall be irrevocable for the term of this Agreement and thereafter as long as any of the

 

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Obligations shall be outstanding. Secured Party may exercise this power of attorney only after the occurrence and during the continuance of an Event of Default.

10.          Notices. Notices shall be given in the manner, to the addresses and with the effect provided in Section 7.1 of the Credit Agreement.

11.          Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other Person, then Secured Party shall have the right in its sole discretion to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of Secured Party’s rights and remedies hereunder.

 

12.

No Waiver; Rights Cumulative.

(a)           No course of dealing between any Grantor and Secured Party, or Secured Party’s failure to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver thereof. Any single or partial exercise of any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

(b)           All of Secured Party’s rights and remedies with respect to the Collateral, whether established hereby or by any other agreements, instruments or documents or by law, shall be cumulative and may be exercised singly or concurrently.

13.          Limitation on Secured Party’s Duty in Respect of Collateral. Secured Party shall not have any duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of it or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto, except that Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control.

14.          Amendments, Etc. No amendment or waiver of any provision of this Agreement nor consent to any departure by Secured Party therefrom shall in any event be effective unless the same shall be in writing, approved by Secured Party and signed by Secured Party, and then any such waiver or consent shall only be effective in the specific instance and for the specific purpose for which given.

15.          Successors and Assigns. This Agreement and all obligations of Grantors and Secured Party hereunder shall be binding upon the successors and assigns of Grantors and Secured Party, as applicable, and shall, together with the rights and remedies of Secured Party hereunder, inure to the benefit of Secured Party and their respective successors and assigns.

16.          No Partnership. The relationship between Secured Party and Grantors shall be only of creditor-debtor and no relationship of agency, partner or joint- or co-venturer shall be created by or inferred from this Agreement or the other Credit Documents. Grantors shall indemnify, defend, and save Secured Party harmless from any and all claims asserted against Secured Party as being the agent, partner, or joint-venturer of Grantors.

17.          Entire Agreement. This Agreement embodies the entire agreement and understanding between Grantors and Secured Party with respect to its subject matter and supersedes all prior conflicting or inconsistent agreements, consents and understandings relating to such subject matter. Each Grantor acknowledges and agrees that there is no oral agreement between any Grantor and Secured Party which has not been incorporated in this Agreement.

 

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18.          Counterparts. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

19.          Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without effecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

20.

Governing Law; Jurisdiction; Consent to Service of Process.

(a)           This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent the UCC provides for the application of the law of another state.

(b)           EACH GRANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY FEDERAL OR STATE COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST IT AND RELATED TO OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND CONSENTS TO THE PLACING OF VENUE IN NEW YORK COUNTY OR OTHER COUNTY PERMITTED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS AGREEMENT OR INSTRUMENT REFERRED TO HEREIN MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH GRANTOR AGREES NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT. EXCEPT AS PROHIBITED BY LAW, EACH GRANTOR HEREBY WAIVES ANY RIGHT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT.

(c)           Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 7.1 of the Credit Agreement. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law.

21.          Headings. Section headings used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

22.          Joint and Several Obligations. All Obligations, agreements and liabilities of Grantors under this Agreement shall be joint and several.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the undersigned party has executed this Agreement to be effective for all purposes as of the date above first written.

 

MARVEL ENTERTAINMENT, INC.

 

 

MARVEL ENTERTAINMENT, INC.

 

 

By /s/ Kenneth P. West

      Name  Kenneth P. West

      Title:  Executive Vice President and
      Chief Financial Officer

 

 

Notice Address for The Borrower:

 

ADDITIONAL OBLIGOR(S):

 

MARVEL CHARACTERS, INC.

 

 

By /s/ Kenneth P. West

      Name  Kenneth P. West

      Title:  Treasurer

 

 

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EXHIBIT A

 

This Exhibit A to the Pledge and Security Agreement, dated as of November 9, 2005 (as amended, supplemented or modified from time to time, the “Pledge Agreement”), made by Marvel Entertainment, Inc. and Marvel Characters, Inc. (“Grantors”) in favor of HSBC Bank USA, National Association (the “Secured Party”) describes the Collateral granted by each Grantor to Secured Party pursuant to the Pledge Agreement. “UCC” means the Uniform Commercial Code as in effect in the State of New York as the UCC may be amended, supplemented or modified from time to time. Any reference to any agreement, instrument or document shall be construed as referring to such agreement, instrument or document, as amended, supplemented or modified from time to time. The Collateral shall be all of each Grantor’s right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all of the following items of personal property of such Grantor:

1.            Account No. 550-09500 maintained at HSBC Securities (USA) Inc. at 452 Fifth Avenue, New York, New York 10018 (which constitutes a “Security Account” under the UCC).

2.            All of the common stock of Marvel Entertainment, Inc. owned by the Borrower that has been repurchased by Marvel Entertainment, Inc. after the Closing Date.

 

3.

All of each Grantor’s Accounts (as defined in the UCC).

4.            All of each Grantor’s right, title and interest in and to the Master Toy License, including (a) all rights of each Grantor to receive moneys and other property or assets due and to become due under or pursuant to the Master Toy License (such rights being subject to the rights of motion picture studios to share in certain license streams generated by the Master Toy License), (b) all claims of each Grantor for damages arising out of or for breach of or default under the Master Toy License, (c) all rights of each Grantor to receive moneys and other proceeds due and to become due pursuant to any indemnity, costs and expenses provision or guaranty under the Master Toy License, (d) the right of each Grantor to terminate the Master Toy License, to perform thereunder and to compel performance and otherwise exercise all rights and remedies thereunder, and (e) all accounts and general intangibles relating to or arising in connection with or out of the Master Toy License.

5              To the extent not included in the foregoing, all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds (as defined in the UCC), products, offspring, rents, issues, profits and returns of and from any of the foregoing.

 

 

 

 


 

The undersigned has executed this Exhibit A as of the date first written above.

 

MARVEL ENTERTAINMENT, INC.

 

 

By /s/ Kenneth P. West

      Name  Kenneth P. West

      Title:  Executive Vice President and
      Chief Financial Officer

 

 

MARVEL CHARACTERS, INC.

 

 

By /s/ Kenneth P. West

      Name  Kenneth P. West

      Title:  Treasurer

 

 

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EXHIBIT B

 

SUPPLEMENT NO. _______ dated as of _____________, 200_ (this “Supplement”) to Pledge and Security Agreement dated as of November ___, 2005 (as amended, supplemented or modified from time to time, the “Pledge Agreement”) made by Marvel Entertainment, Inc. (the “Grantor”) in favor of HSBC Bank USA, National Association (the “Secured Party”).

As security for the Obligations (as defined in the Pledge Agreement), Grantor hereby delivers, assigns, pledges, sets over and grants to Secured Party a first priority security interest in, all of each Grantors’ right, title and interest, whether now existing or hereafter arising or acquired, in and to any and all items of personal property of each Grantor described below together with all substitutions and replacements thereof and any products and proceeds thereof:

[describe collateral]

Exhibit A to the Pledge Agreement executed by each Grantor shall be deemed amended to include all of the foregoing items of personal property and such items shall be “Collateral” as defined in the Pledge Agreement and subject to the terms of the Pledge Agreement.

This Supplement shall be governed by and construed in accordance with the laws of the State of New York.

IN WITNESS WHEREOF, the undersigned parties have executed this Supplement to be effective for all purposes as of the date above first written.

GRANTORS:

 

MARVEL ENTERTAINMENT, INC.

 

 

By_________________________________

 

Name:

 

Title:

 

 

MARVEL CHARACTERS, INC.

 

 

By_________________________________

 

Name:

 

Title:

 

 

 

 

 

 

 

 EX-10 9 ex10-7.htm EX. 10.7

 

Exhibit 10.7

 

 

GUARANTY

THIS GUARANTY, is entered into as of November 9, 2005, by Marvel Characters, Inc., and such other persons who may become party hereto from time to time as guarantors pursuant to joinder documentation satisfactory to the Lender (the “Guarantors”), in favor of and for the benefit of HSBC Bank USA, National Association (the “Lender”).

RECITALS

The Lender has made or will make one or more loans (the “Loans”) to Marvel Entertainment, Inc. (the “Borrower”), pursuant to the Credit Agreement, dated as of the date hereof (as amended, supplemented or modified from time to time, the “Credit Agreement”) among the Borrower, certain affiliates thereof, including the Guarantors, and the Lender. The Guarantors, being affiliated with the Borrower, acknowledges and agrees that the Guarantors have received and will receive direct and indirect benefits from the extension of the Loans made to the Borrower. The Guarantors wish to grant the Lender security and assurance in order to secure the payment and performance by the Borrower of all of its present and future Obligations (as that term is defined below), and, to that effect, to guaranty the Borrower’s Obligations as set forth herein. Accordingly, the Guarantors hereby agree as follows:

 

1.

Guaranty.

(a)           The Guarantors hereby unconditionally and irrevocably guarantee to the Lender the full and punctual payment by the Borrower, when due, whether at the stated due date, by acceleration or otherwise of all Obligations (as defined below) of the Borrower, howsoever created, arising or evidenced, voluntary or involuntary, whether direct or indirect, absolute or contingent now or hereafter existing or owing to the Lender, (collectively, the “Guaranteed Obligations”). This Guaranty is an absolute, unconditional, continuing guaranty of payment and not of collection of the Guaranteed Obligations and includes Guaranteed Obligations arising from successive transactions which shall either continue such Guaranteed Obligations or from time to time renew such Guaranteed Obligations after the same has been satisfied. This Guaranty is in no way conditioned upon any attempt to collect from the Borrower or upon any other event or contingency, and shall be binding upon and enforceable against the Guarantors without regard to the validity or enforceability of any document, instrument or agreement evidencing or governing the Obligations or any other agreement or instrument executed in connection therewith (including, without limitation, this Guaranty) or contemplated thereby (each, a “Credit Document” and, collectively, the “Credit Documents”). If for any reason the Borrower shall fail or be unable duly and punctually to pay any of the Guaranteed Obligations (including, without limitation, amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)), the Guarantors will forthwith pay the same, in cash. As used herein “Obligations” shall mean all obligations, liabilities and indebtedness of the Borrower to the Lender under the Credit Agreement and the “Credit Documents” referred to therein and any documents relating thereto, whether now existing or hereafter created, absolute or contingent, direct or indirect, due or not, whether created directly or acquired by assignment or otherwise, including, without limitation, the Loans and the payment and performance of all other obligations, liabilities, and indebtedness of the Borrower to the Lender under the Credit Documents, including without limitation all fees, costs, expenses and indemnity obligations thereunder.

(b)           In the event any Credit Document shall be terminated as a result of the rejection thereof by any trustee, receiver or liquidating agent of the Borrower or any of their properties in any bankruptcy, insolvency, reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar proceeding, the Guarantors’ obligations hereunder shall continue to the same extent as if such Credit Document had not been so rejected.

 

 


 

(c)           The Guarantors agree to pay all reasonable costs, expenses (including, without limitation, attorneys’ fees and disbursements) and damages incurred in connection with the enforcement of the Guaranteed Obligations of the Borrower to the extent that such costs, expenses and damages are not paid by the Borrower pursuant to the respective Credit Documents.

(d)           The Guarantors further agree that if any payment made by the Borrower or the Guarantors to the Lender on any Guaranteed Obligation is rescinded, recovered from or repaid by the Lender, in whole or in part, in any bankruptcy, insolvency or similar proceeding instituted by or against the Borrower or Guarantors, this Guaranty shall continue to be fully applicable to such Guaranteed Obligation to the same extent as though the payment so recovered or repaid had never originally been made on such Guaranteed Obligation regardless of, and, without giving effect to, any discharge or release of the Guarantors’ obligations hereunder granted by the Lender after the date hereof.

2.            Guaranty Continuing, Absolute, Unconditional. The obligations of the Guarantors hereunder shall be continuing, absolute, unlimited and unconditional, shall not be subject to any counterclaim, setoff, deduction or defense based upon any claim the Guarantors may have against the Lender or the Borrower or any other person, and shall remain in full force and effect without regard to, and, to the fullest extent permitted by applicable law, shall not be released, discharged or in any way affected by, any circumstance or condition (whether or not the Guarantors shall have any knowledge or notice thereof) whatsoever which might constitute a legal or equitable discharge or defense.

3.            Waivers. The Guarantors unconditionally and irrevocably waive, to the fullest extent permitted by applicable law: (a) notice of any of the matters referred to in Section 2; (b) all notices which may be required by statute, rule of law or otherwise to preserve any rights against the Guarantors hereunder, including, without limitation, notice of the acceptance of this Guaranty, or the creation, renewal, extension, modification or accrual of the Guaranteed Obligations or notice of any other matters relating thereto, any presentment, demand, notice of dishonor, protest, nonpayment of any damages or other amounts payable under any Credit Document; (c) any requirement for the enforcement, assertion or exercise of any right, remedy, power or privilege under or in respect of any Credit Document, including, without limitation, diligence in collection or protection of or realization upon the Guaranteed Obligations or any part thereof or any collateral therefor; (d) any requirement of diligence; (e) any requirement to mitigate the damages resulting from a default by the Borrower under any Credit Document; (f) the occurrence of every other condition precedent to which the Guarantors or the Borrower may otherwise be entitled; (g) the right to require the Lender to proceed against the Borrower or any other person liable on the Guaranteed Obligations, to proceed against or exhaust any security held by the Borrower or any other person, or to pursue any other remedy in the Lender’s power whatsoever; (h) the right to have the property of the Borrower first applied to the discharge of the Guaranteed Obligations and (i) until such time that all Guaranteed Obligations have been indefeasibly paid in full, any and all rights it may now or hereafter have under any agreement or at law or in equity (including, without limitation, any law subrogating the Guarantors to the rights of the Lender) to assert any claim against or seek contribution, indemnification or any other form of reimbursement from the Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by the Guarantors under or in connection with this Guaranty or otherwise. The Lender may, at its election, exercise any right or remedy it may have against the Borrower without affecting or impairing in any way the liability of the Guarantors hereunder and the Guarantors waive, to the fullest extent permitted by applicable law, any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of the Guarantors against the Borrower, whether resulting from such election by the Lender or otherwise. The Guarantors waive any defense arising by reason of any disability or other defense of the Borrower or by reason of the cessation for any cause whatsoever of the liability, either in whole or in part, of the Borrower to the Lender for the Guaranteed Obligations. The Guarantors assume the responsibility for being and keeping informed of the financial condition of the Borrower and of all

 

2

 


 

other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and agrees that the Lender shall not have any duty to advise the Guarantors of information regarding any condition or circumstance or any change in such condition or circumstance. The Guarantors acknowledge that the Lender has not made any representations to the Guarantors concerning the financial condition of the Borrower.

4.            Security. The Guaranteed Obligations are secured by collateral more fully described in the Credit Documents and the Credit Agreement.

5.            Parties. This Guaranty shall inure to the benefit of the Lender and its successors, assigns or transferees, and shall be binding upon the Guarantors and its successors and assigns. Guarantors may not delegate any of Guarantors’ duties under this Guaranty without the prior written consent of the Lender.

6.            Notices. Any notice shall be given in the manner, to the addresses and with the effect set forth in Section 7.1 of the Credit Agreement.

7.            Right to Deal with the Borrower. At any time and from time to time, without terminating, affecting or impairing the validity of this Guaranty or the obligations of the Guarantors hereunder, the Lender may deal with the Borrower in the same manner and as fully as if this Guaranty did not exist and shall be entitled, among other things, to grant the Borrower, without notice or demand and without affecting the Guarantors’ liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under any Credit Document or any other document evidencing Obligations of the Borrower to the Lender, or to waive any obligation of the Borrower to perform, any act or acts as the Lender may deem advisable.

8.            GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE GUARANTORS HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK IN ANY ACTION, SUIT OR PROCEEDING BROUGHT AGAINST THE GUARANTORS AND RELATED TO OR IN CONNECTION WITH THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTORS HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT THE GUARANTORS ARE NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE SUIT, ACTION OR PROCEEDING IS IMPROPER, OR THAT THIS GUARANTY OR ANY DOCUMENT OR ANY INSTRUMENT REFERRED TO HEREIN OR THE SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE GUARANTORS AGREE (I) NOT TO SEEK AND HEREBY WAIVES THE RIGHT TO ANY REVIEW OF THE JUDGMENT OF ANY SUCH COURT BY ANY COURT OF ANY OTHER NATION OR JURISDICTION WHICH MAY BE CALLED UPON TO GRANT AN ENFORCEMENT OF SUCH JUDGMENT AND (II) NOT TO ASSERT ANY COUNTERCLAIM, IN ANY SUCH SUIT, ACTION OR PROCEEDING UNLESS SUCH COUNTERCLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION. THE GUARANTORS AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON THE GUARANTORS BY CERTIFIED OR REGISTERED MAIL

 

3

 


 

TO THE ADDRESS FOR NOTICES SET FORTH IN THIS GUARANTY OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK. THE GUARANTORS IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS GUARANTY, THE CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

9.            Miscellaneous. (a) If any term of this Guaranty or any application hereof shall be invalid or unenforceable, the remainder of this Guaranty and any other application of such term shall not be affected thereby. (b) Any term of this Guaranty may be amended, waived, discharged or terminated only by an instrument in writing signed by the Guarantors and the Lender. No notice to or demand on the Guarantors shall be deemed to be a waiver of the obligations of the Guarantors or of the right of the Lender to take further action without notice or demand as provided in this Guaranty. No course of dealing between the Guarantors and the Lender shall change, modify or discharge, in whole or in part, this Guaranty or any obligations of the Guarantors hereunder. No waiver of any term, covenant or provision of this Guaranty shall be effective unless given in writing by the Lender and if so given shall only be effective in the specific instance in which given. (c) The headings in this Guaranty are for purposes of reference only and shall not limit or define the meaning hereof. (d) No delay or omission by the Lender in the exercise of any right under this Guaranty shall impair any such right, nor shall it be construed to be a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise of any other right. (e) The execution and delivery of this Guaranty shall not supersede, terminate, modify or supplement in any manner any other guaranty previously executed and delivered to the Lender by the Guarantors and no release or termination of any guaranty shall be construed to terminate or release any other guaranty unless such guaranty is specifically referred to in any such termination.

10.          Joint and Several Obligations. All Obligations, agreements and liabilities of the Guarantors under this Guaranty shall be joint and several.

 

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4

 


 

IN WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty as of the day and year first above written.

GUARANTORS

 

MARVEL CHARACTERS, INC.

 

 

/s/ Kenneth P. West

Name: Kenneth P. West

Title: Treasurer

 

 

 

 

 

5

 

 

 

 EX-10 10 ex10-8.htm EX. 10.8

 

Exhibit 10.8

 

 

SHARE DISPOSITION AGREEMENT

SHARE DISPOSITION AGREEMENT (the “Agreement”), dated as of November 9, 2005, by and between Marvel Entertainment, Inc., a Delaware corporation (the “Company”), and Isaac Perlmutter (the “Stockholder”).

RECITALS

WHEREAS, the Stockholder owns beneficially shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) and options to purchase shares of Common Stock;

WHEREAS, the Board of Directors of the Company (the “Board of Directors”) has authorized a stock repurchase program pursuant to which the Company may purchase up to $250 million of the Common Stock from time to time in the open market or through privately negotiated transactions (the “2005 Program”);

WHEREAS, the Company’s 2005 Program shall remain in effect until the earlier of: (i) its cancellation by the Board of Directors; or (ii) the Company completing the purchase of $250 million of the Common Stock under the 2005 Program (the “Stock Repurchase Period”); and

WHEREAS, the Company and the Stockholder are entering into this Agreement to provide for certain rights and obligations in connection with the shares and options owned by the Stockholder, upon the terms and subject to the conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual premises and covenants contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I.

Section 1.01      RESTRAINT ON ALIENATION. The Stockholder agrees that, during the period beginning from the date hereof and continuing to the earlier of (a) the end of the Stock Repurchase Period, (b) October 15, 2006, (c) the date the Stockholder is neither an employee nor a director of the Company, or (d) a “Change of Control”, the Stockholder will not offer, sell, contract to sell, grant any option to purchase, make any short sale or otherwise dispose of any shares of Common Stock, or any options or warrants to purchase any shares of Common Stock, or any securities convertible into, exchangeable for or that represent the right to receive shares of Common Stock, whether now owned or hereinafter acquired, owned directly by the Stockholder (including holding as a custodian) or with respect to which the Stockholder has beneficial ownership within the rules and regulations of the SEC (collectively, the “Stockholder’s Stock”). For purpose of this Agreement, a Change of Control shall mean a transaction whereby (i) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting

 

 


power of the Company’s then outstanding securities entitled to vote in the election of directors of the Company, (ii) the Company is a party to any merger, consolidation or similar transaction as a result of which the stockholders of the Company immediately prior to such transaction beneficially own securities of the surviving entity representing less than fifty percent (50%) of the combined voting power of the surviving entity’s outstanding securities entitled to vote in the election of directors of the surviving entity or (iii) all or substantially all of the assets of the Company are acquired by a third party.

Section 1.02      RESTRICTIONS ON HEDGING OR OTHER TRANSACTIONS. The foregoing restriction is expressly agreed to preclude the Stockholder from engaging in any hedging or other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of the Stockholder’s Stock even if such Shares would be disposed of by someone other than the Stockholder. Such prohibited hedging or other transactions would include without limitation any short sale or any sale or grant of any right (including without limitation any put or call option) with respect to any of the Stockholder’s Stock or with respect to any security that includes, relates to, or derives any significant part of its value from such Stockholder’s Stock.

Section 1.03      ALLOWABLE TRANSFERS. Notwithstanding the foregoing, the Stockholder may transfer the Stockholder’s Stock (i) as a bona fide gift or gifts, provided that the donee or donees thereof receiving in excess of 1,000 shares of the Stockholder’s Stock agree to be bound in writing by the restrictions set forth herein, (ii) to any trust, limited partnership or similar vehicle for the direct or indirect benefit of the Stockholder or the immediate family of the Stockholder or to any corporation which is wholly-owned by such a trust, limited partnership or similar vehicle, provided that the trustee of the trust, the general partner of the limited partnership or the person holding the similar position in another vehicle agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, or (iii) among any entities described in clause (ii) provided that any such transfer shall not involve a disposition for value. For purposes of this Agreement, any transfer by the Stockholder of the Stockholder’s Stock pursuant to clause (ii) above in consideration for an ownership interest in such limited partnership, trust or similar vehicle shall be deemed to not involve a disposition for value. In addition, for purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.

ARTICLE II.

Section 2.01      DISPOSITION OF COMMON STOCK. Nothing contained herein shall in any way supersede, replace, diminish, or nullify any other restrictions or obligations promulgated by the Securities Act of 1933, as amended, or otherwise binding on the Stockholder with respect to disposition of the Common Stock.

Section 2.02      ENTIRE AGREEMENT. This Agreement represents the entire agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes any and all prior oral and written agreements, arrangements and understandings among the parties hereto with respect to such subject matter, and can be amended, supplemented or changed, and any provision hereof can be waived, only by a written instrument making

 

2

 


specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought.

Section 2.03      SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns, including any person to whom the Stockholder may assign Stockholder’s rights and obligations and shall inure to the benefit of the parties hereto and, their respective successors and assigns.

Section 2.04      PARAGRAPH HEADINGS. The paragraph headings contained in this Agreement are for general reference purposes only and shall not affect in any manner the meaning or interpretation of the terms or other provisions of this Agreement.

Section 2.05      APPLICABLE LAW. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of New York without regard to the conflicts of law principles of such state.

Section 2.06      SEVERABILITY. If at any time subsequent to the date hereof, any provision of this Agreement shall be held by any court of competent jurisdiction to be illegal, void or unenforceable, such provision shall be of no force and effect, but the illegality or unenforceability of such provision shall have no effect upon and shall not impair the enforceability of any other provision of this Agreement.

Section 2.07      NO WAIVER. The failure of any party at any time or times to require performance of any provision hereof shall not affect the right at a later time to enforce the same. No waiver by any party of any condition, and no breach of any provision, term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be construed as a further or continuing waiver of any such condition or of the breach of any other provision, term, covenant, representation or warranty of this Agreement.

Section 2.08      COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same original instrument.

 

 

3

 


 

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement, as of the day and year first above written.

COMPANY:

MARVEL ENTERTAINMENT, INC.

By: /s/ John Turitzin

_________________________________  

 

Name:

John Turitzin

 

 

Title:

Executive Vice President

STOCKHOLDER:

 

/s/ Isaac Perlmutter

_____________________________________

 

Isaac Perlmutter

 

 

 

4

 

 

 

 EX-31 11 ex31-1.htm EX. 31.1

 

Exhibit 31.1

 

 

CERTIFICATION

I, Isaac Perlmutter, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Marvel Entertainment, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a)            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)            Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)             All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)            Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 9, 2005

/s/ Isaac Perlmutter

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

Isaac Perlmutter

Chief Executive Officer

 

 

 EX-31 12 ex31-2.htm EX. 31.2

 

Exhibit 31.2

 

 

CERTIFICATION

 

I, Kenneth P. West, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Marvel Entertainment, Inc.;

 

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

 

a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)     Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)     Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)     Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

 


 

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: November 9, 2005

 

/s/ Kenneth P. West

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

Kenneth P. West

Chief Financial Officer

 

 

 

 

 

 EX-32 13 ex32.htm EX. 32

 

+

Exhibit 32

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEYACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Marvel Entertainment, Inc. (the “Company”) for the fiscal quarter ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Isaac Perlmutter and Kenneth P. West, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of       1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and       result of operations of the Company.

 

 

/s/ Isaac Perlmutter

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

Isaac Perlmutter

Chief Executive Officer

November 9, 2005

 

/s/ Kenneth P. West

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

Kenneth P. West

Chief Financial Officer

November 9, 2005

 

A signed original of this written statement required by Section 906 has been provided to Marvel Entertainment, Inc. and will be retained by Marvel Entertainment, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 


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