Direct Revenue Sharing Adjustable License Agreement - Blockbuster Inc. and Universal Studios Home Video
DIRECT REVENUE SHARING ADJUSTABLE LICENSE AGREEMENT
THIS AGREEMENT (the "Agreement") is made the 13th day of October, 1998 (the
"Effective Date").
BETWEEN:
(1) BLOCKBUSTER INC. whose principal place of business is at 1201 Elm Street,
Dallas, Texas 75270 (hereinafter referred to as "Blockbuster," which shall be
deemed to include its assigns once assigned); and
(2) UNIVERSAL STUDIOS HOME VIDEO whose principal place of business is at 100
Universal City Plaza, Universal City, California 91608 (hereinafter referred
to as "USHV," which shall be deemed to include its permitted assigns once
assigned).
WHEREAS:
(A) Blockbuster and certain of its Affiliates (the terms initially
capitalized in this Agreement and not otherwise defined herein shall have the
respective meanings set forth in Paragraph 1 of this Agreement) own, operate
and franchise retail stores which, among other things, rent, sell and market
pre-recorded videocassette tapes to the general public; and
(B) USHV and certain of its Affiliates acquire, produce, license, market and
sell motion pictures on pre-recorded videocassette tapes;
(C) USHV and Blockbuster are willing to enter into this Agreement under which
Blockbuster licenses, and has the option to purchase at the end of the
Revenue Sharing Period from USHV, the specified number of Copies of each
Rental Picture set forth herein;
(D) Blockbuster is willing to report electronically on an ongoing basis during
the Revenue Sharing Period information as to the rental of Copies per Rental
Picture as set forth in Exhibit D, attached hereto and made a part hereof.
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* Pages where confidential treatment has been requested are stamped
"Confidential material omitted and separately filed with the Commission
under an application for confidential treatment", and the confidential
section has been marked with a star (*).
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NOW THEREFORE, based on the above premises and in consideration of the mutual
covenants and agreements contained herein, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS:
a. "Affiliate" shall mean (i) in the case of USHV, all companies which
are controlled by or in which USHV has a controlling interest or which have a
common direct or indirect parent; and (ii) in the case of Blockbuster, all
companies which are controlled by or in which Blockbuster has a controlling
interest or which have a common direct or indirect parent.
b. "Agreement Year" shall mean a twelve (12) month period commencing on
the Effective Date of this Agreement. Each year in the Term may be referred
to as an "Agreement Year" or "Agreement Year One" or "Agreement Year Two."
c. "Bad Debt" shall mean *
d. "Blockbuster Headquarters" shall mean the corporate office of
Blockbuster located at 1201 Elm Street, Dallas, Texas 75270.
e. "Copy(ies)" shall mean English language and Spanish sub-titled VHS
videocassettes of the Rental Pictures licensed by Blockbuster from USHV for
Home Video Distribution. All other formats, including laserdisc, digital,
divx and DVD are not included under this Agreement.
f. "Damaged Copies" shall mean those Copies which become materially
damaged by Participating Store personnel, customers, or otherwise, during the
first ninety (90) calendar days of the Revenue Sharing Period.
g. "Defective Copies" shall mean those Copies that are mechanically
defective, mispackaged or contain extraneous material. Such extraneous material
may include, without limitation, pornographic, obscene or scenes of an
inappropriate nature placed on Copies, provided, however, that such extraneous
material shall not include the actual feature motion
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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picture content or trailers so long as such content is not altered in any way
and is in compliance with the MPAA rating and the definition of Rental Pictures.
h. "Distribution Center" shall mean Blockbuster's distribution center that
is currently in McKinney, Texas. Blockbuster may add an additional two (2)
delivery points in the United States at its option.
i. "Dreamworks Pictures" shall mean all pictures, whether
theatrical-length or otherwise, for which USHV provides fulfillment services
under its Dreamworks deal agreement.
j. "Franchise Stores" shall mean Blockbuster franchise stores designated
by Blockbuster from time to time as ordering Copies through Blockbuster. If a
Franchise Store elects to participate hereunder and is therefore designated by
Blockbuster pursuant to this Paragraph, it shall be deemed a Participating
Store.
k. "Gross Box Office" or "GBO" shall mean the box office gross receipts
earned by a Rental Picture in the United States and Canada measured from the
Rental Picture's initial theatrical release in the Territory until the date
licensed by Blockbuster, as reported by HOLLYWOOD REPORTER or VARIETY.
l. "Home Video Distribution" or "Home Video Distribution Rights" shall
mean the right to manufacture, record, sell and/or distribute a motion picture
on videocassettes.
m. "Month" or "Monthly" shall mean Blockbuster's accounting cycles that
are based upon a four week, four week, five week rotation as set forth in
Exhibit C attached hereto and made a part hereof.
n. "Non-Theatrical Rental Pictures" shall mean each and every
non-theatrical feature motion picture for which USHV owns or controls Home
Video Distribution Rights in the Territory except for Dreamworks Pictures,
provided such picture; (1) is at least seventy (70) minutes in length; (2) is
within Blockbuster's guidelines of the MPAA rating system (i.e., Blockbuster
does not make available for rental to its customers' pictures which are
either not rated or which have a rating of NC17 or more restrictive); (3) is
not a sports event, concert film, stage play, foreign film, (with the
exception of foreign produced films in the English language), documentary,
video or theatrical re-release, or library film; and (4) is initially
distributed by USHV via a medium other than theatrical release (e.g., via
home video, cable, pay or free television exhibition) which when released on
videocassette is priced and distributed by USHV at the then current
"wholesale price for rental" now estimated at Fifty-eight Dollars (US$58.00)
(as opposed to a "sell-through price"), and is intended by USHV to be rented
rather than sold to consumers. If USHV and a third party execute a direct
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revenue sharing agreement which contains more favorable compensation terms
than the terms of this Agreement (the "New Output Agreement"), then
Blockbuster shall have the option to substitute all, but not less than all,
of the terms of the New Output Agreement for the terms of this Agreement
during the remainder of the Term of this Agreement. Further, USHV shall
exercise practices relating to the acquisition and distribution of Rental
Pictures throughout the Term of this Agreement substantially similar to those
in which it engages at the time of entering this Agreement, and to the extent
such practices deviate, it shall be a basis for Blockbuster to refuse any
Rental Picture.
o. "Participating Store" shall mean (i) any Video Store in the United
States, which at any time during the Term of this Agreement, is wholly owned
and/or operated by Blockbuster or its Affiliates under the Blockbuster
trademarks; (ii) if designated by Blockbuster as ordering Copies through
Blockbuster, any Video Store in the United States, which at any time during the
Term of this Agreement, is wholly owned and/or operated by Blockbuster or its
Affiliates not under the Blockbuster trademarks; and (iii) Franchise Store. With
regard to Blockbuster stores in Canada, it shall mean those stores designated by
Blockbuster or an Affiliate from time to time as ordering Copies through
Blockbuster. For Copy quantity allocation purposes, Kiosks and Video Vending
Machines (the "Special Formats") shall not be included in the definition of
"Participating Stores." Blockbuster will continue to test various Special
Formats and at the time of general adoption by Blockbuster of a Special Format
following completion of a test, the parties shall discuss the results of the
test and mutually develop a matrix to facilitate the license of Copies for such
Special Formats.
p. "Promotional and Operational Credits" shall mean *
q. "Rental Picture" and "Theatrical Rental Picture" shall mean each and
every feature motion picture for which USHV owns or controls Home Video
Distribution Rights in the Territory except for Dreamworks Pictures, provided
such picture: (1) is at least seventy (70) minutes in length; (2) is within
Blockbuster's guidelines of the MPAA rating system (i.e., Blockbuster does
not make available for rental to its customers pictures which are either not
rated or which have a rating of NC17 or more restrictive); (3) is not a
sports event, concert film, stage play, foreign film (with the exception of
foreign produced films in the English language), documentary, video or
theatrical re-release, or library film; and (4) is distributed by USHV when
initially released on videocassette, is
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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priced and priced by USHV at the then current "wholesale price for rental"
now estimated at Fifty-eight Dollars (US$58.00) (as opposed to a
"sell-through price"), and is intended by USHV to be rented rather than sold to
consumers. If USHV and a third party execute a direct revenue sharing output
agreement which contains more favorable compensation terms than the terms of
this Agreement (the "New Output Agreement"), then Blockbuster shall have the
option to substitute all, but not less than all, of the terms of the New
Output Agreement for the terms of this Agreement during the remainder of the
Term of this Agreement. Further, USHV shall exercise practices relating to
the acquisition and distribution of Rental Pictures throughout the Term of
this Agreement substantially similar to those in which it engages at the time
of entering this Agreement, and to the extent such practices deviate, it
shall be a basis for Blockbuster to refuse any Rental Picture.
r. "Rental Revenue" shall mean the *
s. "Rental Transaction" shall mean that period of time that a title is
rented to a customer, including any extended viewing period, as defined by
Blockbuster's then current practices across all videocassettes available for
rental from all videocassettes suppliers.
t. "Revenue Sharing Period" shall mean the period commencing on the Video
Street Date of the relevant Rental Picture and running for the twenty-six (26)
weeks immediately following.
u. "Video Store" shall mean a retail outlet that is at least one thousand
five hundred (1,500) square feet that is primarily engaged in the rental of
videocassettes to the public for home viewing entertainment purposes.
v. "Video Street Date" shall mean, with respect to any Picture, the
first date on which, in the Territory, both: (i) such Picture is authorized
by USHV for Home Video Distribution, and (ii) Copies of such Picture are
actually available to the general public.
2. AGREEMENT TERM:
The term of this Agreement shall be for two (2) years (the "Term"),
commencing as of the Effective Date.
3. TERRITORY:
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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The territory for purposes of this Agreement with respect to each
Rental Picture shall be the United States, its territories and possessions,
if and to the extent USHV owns or controls such rights to territories and
possessions of the United States (the "Territory"). Blockbuster and USHV
agree to discuss the inclusion of Canada, its provinces, territories and
possessions in the Territory in accordance with the terms and conditions of
this Agreement or comparable terms mutually agreed upon by the parties.
4. BLOCKBUSTER COMMITMENTS:
Beginning as of the date of this Agreement for Participating Stores,
Blockbuster agrees as follows:
a. License: The following terms shall apply to Rental Pictures:
(1) REVENUE SHARES COPIES: For each and every * licensed pursuant
to this Agreement, Blockbuster agrees to license, and USHV agrees to
license to Blockbuster, * the Base Units number of Copies set forth in
the Matrices attached hereto as EXHIBIT A and EXHIBIT B ( * ), and made
a part hereof. For each and every * licensed by Blockbuster pursuant to
this Agreement, Blockbuster agrees to license from USHV, and USHV
agrees to license to Blockbuster a quantity of not less than the * Base
Units number of Copies as set forth on the Matrix multiplied by * and
up to, in Blockbuster's discretion, an aggregate of * the Base Units
number of Copies as set forth in EXHIBIT A and EXHIBIT B. The total
number of Copies licensed by Blockbuster pursuant to this subparagraph
may hereinafter be referred to as the "Revenue Share Copies."
Blockbuster may retain up to * of the Revenue Share Copies at its
Distribution Center for replenishment, new Participating Stores and
unexpected spikes in product performance (the "Excess Copies").
Blockbuster and USHV acknowledge that the * equal to or greater than *
and therefore, the parties shall negotiate in good faith with respect
to each * which shall be for terms * than the terms of this Agreement.
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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(2) RENTAL REVENUE: The percentage of Rental Revenue on all
Revenue Share Copies (excluding * ) paid by Blockbuster to USHV shall
be as follows, unless USHV * under Paragraph 4.c., in which event
Paragraph 4.a.(2)(b) shall apply:
(a) If USHV * under Paragraph 4.c. below:
(1) * Pictures
(i) For each and every * with a GBO of *
released by USHV in the Territory, the * per Base
Units Copy of each Rental Picture * of the Rental
Revenue derived from the Revenue Share Copies of each
Rental Picture during the applicable Revenue Share
Period * during the applicable Revenue Sharing Period,
unless such Copy is purchased sooner by Blockbuster
according to Paragraph 4.c.
(ii) For each and every * , and * (as provided
in subparagraph * below) to be selected * by the
parties, all of which shall have a GBO of * and be
released by USHV in the Territory, the * per Base
Units Copy of each Rental Picture * of the Rental
Revenue derived from the Revenue Share Copies of the
Rental Picture during the applicable Revenue Share
Period * during the applicable Revenue Sharing
Period, unless such Copy is purchased sooner by
Blockbuster according to Paragraph 4.c.
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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(iii) For each and every * with a GBO of *
released by USHV in the Territory * of the Rental
Revenue derived from the Revenue Share Copies of the
Rental Picture during the applicable Revenue Share
Period * during the applicable Revenue Sharing
Period, unless such Copy is purchased sooner by
Blockbuster according to Paragraph 4.c.
(iv) There shall be no cross collaterization of
any kind under the Agreement including, without
limitation, between Rental Pictures.
(2) * Pictures: For each and every * of the Rental
Revenue derived from Revenue Share Copies of the
Rental Picture during the applicable Revenue Share
Period * during the Revenue Sharing Period, unless
such Copy is purchased sooner by Blockbuster
according to Paragraph 4.c.
(b) If USHV * under Paragraph 4.c. below:
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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(1) * Pictures:
(i) For each and every * with a GBO of * or
more released by USHV in the Territory, * of the
Rental Revenue derived from the Revenue Share Copies
of each Rental Picture during the * of the applicable
Revenue Share Period and * of the Rental Revenue
derived from the Revenue Share Copies of each Rental
Picture * of the applicable Revenue Share Period.
(ii) For each and every * and * (as provided in
subparagraph * below) to be selected and mutually
agreed upon by the parties, all of which shall have a
GBO of * and be released by USHV in the Territory, *
of the Rental Revenue derived from the Revenue Share
Copies of each Rental Picture during the * of the
applicable Revenue Share Period and * of the Rental
Revenue derived from the Revenue Share Copies of each
Rental Picture during the * of the applicable Revenue
Share Period.
(iii) For each and every * with a GBO of *
released by USHV in the Territory * of the Rental
Revenue derived from the Revenue Share Copies of each
Rental Picture during the * of the applicable Revenue
Share Period and * of the Rental Revenue derived from
the Revenue Share Copies of each Rental Picture
during the * of the applicable Revenue Share Period.
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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(iv) There shall be no cross collaterization of
any kind under the Agreement including, without
limitation, between Rental Pictures.
(2) * Pictures: For each and every * of the Rental
Revenue derived from the Revenue Share Copies of each
Rental Picture during the * of the applicable Revenue Share
Period * of the Rental Revenue derived from the Revenue
Share Copies of each Rental Picture during the * of the
applicable Revenue Share Period.
(3) Payment: Blockbuster shall pay: (i) USHV's share of the
Rental Revenue on * , the * pursuant to Paragraph 4.c. hereof, and the
applicable * (as defined below) within * calendar days following * ,
but no sooner than * calendar days * , with full payment on all *
calendar days * of the Revenue Sharing Period; and (ii) USHV's share of
the Rental Revenue on * and the * calendar days * expiration of the
Revenue Sharing Period.
b. Participating Franchise Stores: In accordance with the terms and
conditions of this Agreement, Blockbuster may distribute Copies of the Rental
Pictures received under this Agreement to its Franchise Stores. Terms for
implementation of this Agreement at the franchise level and franchise payments
thereunder will be controlled and administered by Blockbuster but shall not be
inconsistent with the terms and conditions of this Agreement. For purposes of
this Agreement if a Franchise Store elects to participate under this Agreement,
such Franchise Store shall be a Participating Store.
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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c. SELL-OFF/BUY BACK: Blockbuster agrees not to sell off any Copies of
a Rental Picture during the * of the Revenue Sharing Period. * to Blockbuster
within the * of the applicable Revenue Share Period, may * . In such event,
Blockbuster will, * , Blockbuster may, during weeks * through * sell up to *
of all Copies of a Rental Picture in inventory and shall pay to USHV * for
each Base Unit number of Copies in the Matrix for each Rental Picture
(the *). Blockbuster will not be obligated to * . In exercising Blockbuster's
sell-off rights pursuant to Paragraph 4 hereof, Blockbuster shall not sell,
lease, license or otherwise dispose of any Copies of any Rental Picture to
any Affiliate, franchisee, or third party, including, without limitation, any
third party liquidator. * Blockbuster may sell Copies of Rental Pictures to
consumers pursuant to the terms of this Agreement through the Internet under
the Blockbuster brand name so long as such sales are not to a third party for
resale and do not otherwise violate the terms of the Agreement. Revenue
generated from selling Copies of a Rental Picture shall not be included in
Rental Revenue.
d. Packing and Shipping: Blockbuster will be responsible for making the
Copies ready for consumer rental at the Distribution Center and will pay for
shipping the Copies from its Distribution Center to its Participating Stores.
e. Damages/Defective Copies: USHV shall deliver to Blockbuster, at no
cost, additional Copies of each Rental Picture in the amount of * of the Base
Buy Copies as set forth on Exhibit A for Blockbuster to retain at its
Distribution Center and to use solely as replacement of Defective Copies and
Damaged Copies; provided, however, that if any of these Copies are placed in
the Participating Stores, USHV shall receive its share of the Rental Revenue
for the new Copy used
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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to replace the Damaged or Defective Copy in place of its share of the Rental
Revenue for the Damaged or Defective Copy.
f. Reporting: On a weekly basis throughout each Rental Picture's
respective Revenue Sharing Period and until such time Revenue Share Copies of
such Rental Picture are purchased pursuant to Paragraph 4.c., Blockbuster
shall electronically (or by any other means mutually agreed to by USHV and
Blockbuster) deliver to USHV reports (in a form mutually agreed to by USHV
and Blockbuster) detailing the number of rental transactions per Rental
Picture licensed pursuant to this Agreement and in a format set forth on
Exhibit D.
g. No First Sale: Blockbuster agrees that the license of a Copy of any
Rental Picture and every Non-Theatrical Rental Picture under this Agreement
shall not be deemed a "sale or other transfer of ownership" within the meaning
of Section 106(3) of the Copyright Act, 17 U.S.C. Section 106(3), and shall not
render Blockbuster an "owner" of the Copy of that Theatrical Rental Picture or
Non-Theatrical Rental Picture within the meaning of the Section 109(a) of the
Copyright Act, 17 U.S.C. Section 109(a). Blockbuster expressly agrees that as
license it has no right to "sell or otherwise dispose of the possession of any
Copy of any Rental Picture and every Non-Theatrical Rental Picture except as
expressly provided in this Agreement.
5. USHV COMMITMENTS:
a. Grant: USHV grants Blockbuster the right to distribute the Copies of
the Rental Pictures to Participating Stores or Blockbuster owned alternative
distribution channels including, without limitation, video vending machines,
for the transfer of possession on a temporary or permanent basis to members
of the general public for home viewing purposes.
b . Marketing Support: In consideration for the various services and
activities which Blockbuster has agreed to perform hereunder for the benefit
of USHV, such as rental reporting functions, USHV agrees to credit
Blockbuster on a per Rental Picture basis (on the relevant invoice) with
marketing support funds (the "Marketing Support Funds") in a minimum amount
of * of the fixed revenue generated for USHV on the Base number of Copies by
Theatrical Rental Pictures (i.e., * x base number of Copies for those with *
or greater x * x base number of Copies for those with Gross Box Office of
less than * Marketing Support Funds) or * per respective Copy. * of the
Marketing Support Funds shall be utilized by Blockbuster at its discretion
for title specific promotion of a particular Rental Picture and advertising
the availability or association of such Rental Picture with Blockbuster (with
a USHV right of consultation) while the remaining * shall be utilized by USHV
at its discretion (with a Blockbuster right of consultation) for title specific
promotion of particular Rental Pictures featuring Blockbuster's trademarks
and logos in any such
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* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment.
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advertisement where applicable (the "Advertisement"). All Advertisements and
marketing materials shall be submitted to the respective party at least
fifteen (15) days prior to broadcast or publication for written approval. If
such party fails to respond within the fifteen (15) days such submission
shall be deemed approved. Both parties shall attempt to work within the
allotted time period for the approval process, provided, however, that if
such time period becomes unreasonable for either Blockbuster or USHV, the
parties shall discuss and extend, if desired, the time period. In certain
instances, based on written communication of specific shorter deadlines, all
reasonable efforts will be made to meet these shorter deadlines. Each party
shall promptly provide the other with written documentation that funds have
been spent in accordance with the terms of this Paragraph.
c. Shipping: USHV will deliver the Copies to the Distribution Center at
least three (3) weeks prior to Video Street Date and will make a good faith
effort to deliver the Copies up to four (4) weeks prior to Video Street Date
per each respective Rental Picture as long as Blockbuster submits its order
by the stated deadline reasonably provided by USHV, provided, however, that
consistent failure by USHV to deliver the Copies within the specified time
period will be considered a material breach of this Agreement.
6. AUDIT:
a. Audit. During the Term and continuing until the date six (6) months
following the date of expiration or earlier termination of this Agreement,
Blockbuster agrees that USHV or USHV's authorized designee with three (3)
business days advance written notice, may conduct, during normal business
hours, Monday through Wednesday; (i) a total of four (4) audits per year of
Blockbuster's business operation and records at the Blockbuster Headquarters;
and (ii) a total of ten (10) audits per year of the business records at a
Participating Store (i.e., ten (10) total audits and not ten (10) audits per
Participating Store), solely pertaining to the Copies licensed by Blockbuster
pursuant to this Agreement. Any additional audit request of information not
provided for above including, without limitation, any audit of Bad Debt or
Promotional and Operational Credits shall be performed by an independent
certified public accountant on an annual basis who will only be given access
to those records pertaining to USHV's Revenue Share Copies. Any audits
conducted pursuant to this section shall relate to Blockbuster's compliance
with the terms of this Agreement and shall not unreasonably interfere with
Blockbuster's daily business operations. USHV agrees that the data and other
information collected by USHV may be used by USHV only in connection with
such audits and to fulfill USHV's commitments under this Agreement.
Blockbuster agrees to reimburse USHV for actual costs incurred if any audit
results in deviation of five percent (5%) or more between the percentage of
Rental Revenue paid to USHV by Blockbuster and the percentage of Rental
Revenue due to USHV by Blockbuster.
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b. Rentrak/SuperComm: Blockbuster shall provide a daily transaction
file in standard Blockbuster format for each Rental Picture to the entity
designated by USHV, which shall be either Rentrak or SuperComm, to allow
Rentrak or SuperComm, as the case may be, to account for revenues due to USHV
pursuant to the terms of this Agreement.
7. USHV'S REPRESENTATIONS AND WARRANTIES:
USHV represents and warrants that:
a. It is a corporation organized and existing under the laws of the State
of California with its principal place of business in the State of California.
b. The undersigned has the full right, power and authority to sign this
Agreement on behalf of USHV.
c. The execution, delivery and performance of this Agreement does not
and will not, violate any provisions of USHV's articles or certificates of
incorporation and bylaws, or any contract or other agreements to which USHV
is a party.
d. There is no broker, finder or intermediary involved in connection with
the negotiations and discussions incident to the execution of this Agreement,
and no broker, finder, agent or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.
e. This Agreement has been duly executed and delivered and constitutes
the legal, valid and binding obligation of USHV enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or any other laws now or hereinafter
in effect and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
f. Copies shall be new and unused and comparable in quality to other
videocassette units being purchased by USHV in rental distribution channels.
8. BLOCKBUSTER'S REPRESENTATIONS AND WARRANTIES:
Blockbuster represents and warrants that:
a. It is a corporation organized and existing under the laws of the State
of Delaware, with its principal place of business in the State of Texas.
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b. The undersigned has the full right, power and authority to sign this
Agreement on behalf of Blockbuster.
c. The execution, delivery and performance of this Agreement does not and
will not, violate any provisions of Blockbuster's articles or certificates of
incorporation and bylaws, or any contract or other agreement to which
Blockbuster is a party.
d. There is no broker, finder or intermediary involved in connection with
the negotiations and discussions incident to the execution of this Agreement,
and no broker, finder, agent or intermediary who might be entitled to a fee,
commissions or any other payment upon the consummation of the transactions
contemplated by this Agreement.
e. This Agreement has been duly executed and delivered and constitutes the
legal, valid and binding obligation of Blockbuster enforceable in accordance
with its terms, except as enforceability may be limited to bankruptcy,
insolvency, reorganization, moratorium or any other laws now or hereinafter in
effect and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
9. INDEMNIFICATION:
(i) USHV agrees to, at all times, defend, indemnify and hold
Blockbuster, its parent company, their affiliates, subsidiaries,
franchisees and the officers, directors, agents and employees of each,
harmless from and against any and all claims, suits, damages, losses,
liabilities, obligation, fines, penalties, cost and expenses (whether
based on libel, slander, invasion of privacy, breach of contract,
product liability, patent, trademark, license or copyright infringement
or otherwise), including legal fees and expenses, of whatever kind or
nature (collectively, "Loss"), arising out of or based on (a) a
material breach or violation of this Agreement by USHV or any failure
by USHV to perform any of the agreements, terms, covenants, conditions,
representations or warranties of this Agreement to be performed by
USHV; (b) the content of any Copy of a Rental Picture licensed by
Blockbuster pursuant to this Agreement; or (c) any negligent acts or
omissions by USHV its employees and/or agents.
(ii) Blockbuster agrees to, at all times, defend, indemnify and hold USHV,
its parent company, their affiliates, subsidiaries, franchisees and the
officers, directors, agents and employees of each, harmless from and
against any Loss, arising out of or based on (a) a material breach or
violation of this Agreement by Blockbuster any failure by Blockbuster to
perform any of the agreements, terms, covenants, conditions,
representations or
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warranties of this Agreement to be performed by Blockbuster, or (b)
negligent acts or omissions by Blockbuster, its employees and/or agents.
(iii) The Indemnified Party shall give written notice to the Indemnifying
Party and the Indemnifying Party will promptly, at the Indemnified Party's
request, assume and diligently conduct the entire defense of any suit or
action, or the making of any claim as to which indemnity may be sought
hereunder, including settlements and appeals, at the Indemnifying Party's
sole cost and expense, and the Indemnifying Party shall pay and discharge
any and all settlement amounts, judgments or decrees which may be
rendered.
(iv) The Indemnifying Entity shall not, except with the consent of the
Indemnified Party, consent to entry of any judgment or administrative
order or enter into any settlement that (i) could affect the intellectual
property rights or other business interest of the Indemnified Party; or
(ii) does not include as an unconditional term thereof the giving by the
claimant or plaintiff by the Indemnified Party of a release from all
liability with respect to such claim or litigation.
(v) In the event that the Indemnifying Party is not asked or does not
accept the defense of any matter as above provided, the Indemnified Party
shall have the full right to defend against any such claim or demand, and
shall be entitled to settle or agree to pay in full such claim of demand,
in its sole discretion without releasing any obligation or liability of
the Indemnifying Party.
10. TERMINATION:
The non-defaulting party may terminate this Agreement if a Default, as
defined below, by the other party has occurred and is continuing by giving
written notice to the defaulting party. The term "Default" shall mean any of the
following: (a) failure by a party to comply with or perform any provision or
condition of this Agreement that results in a material breach of this Agreement
and, if such material breach can be cured, continuance of such failure for
thirty (30) days after written notice to such party (if cure is not practicable,
the thirty (30) day notice period is not required); (b) a party becomes
insolvent, is unable to pay its debts as they mature or is the subject of a
petition in bankruptcy, whether voluntary or involuntary, or of any other
proceeding under bankruptcy, insolvency or similar laws; or makes an assignment
for the benefit of creditors; or is named in, or its property is subject to a
suit for appointment of a receiver, or is dissolved or liquidated; or (c) any
material warranty or representation made in this Agreement is breached, false or
misleading in any material respect. In the event of such termination, the
non-defaulting party shall be entitled to pursue any and all remedies provided
in law and recover any damages it may have suffered by reason of such Default,
provided, however, that USHV expressly
<PAGE>
17
waives its right to seek equitable relief including, without limitation, seeking
injunctive relief. Upon Default and/or termination hereunder, any Copies in
Blockbuster's possession at time of termination shall continue to be licensed
under the terms of this Agreement until such Copies are returned to USHV or
purchased by Blockbuster.
11. REMEDIES:
a. No remedy conferred by any of the specific provisions of this Agreement
is intended to be exclusive of any other remedy which is otherwise available at
law, in equity, by statute or otherwise, and except as otherwise expressly
provided for herein, each and every other remedy shall be cumulative and shall
be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity, by statute or otherwise and no provision hereof
shall be construed so as to limit any party's available remedies in the event of
a breach by the other party hereto. The election of any one or more of such
remedies by any of the parties hereto shall not constitute a waiver by such
party of the right to pursue any other available remedies.
b. Except as provided herein, no civil action with respect to any dispute,
claim or controversy arising out of or relating to this Agreement may be
commenced until:
(i) The parties attempt in good faith to resolve through negotiation
any dispute, claim or controversy arising out of or relating to this
Agreement. Either party may initiate negotiations by sending written
notice in letter form to the other party, setting forth the subject of the
dispute and the relief requested. The recipient of such notice will
respond in writing within five (5) business days with a statement of its
position on and recommend a solution to the dispute. If the dispute is not
resolved by this exchange of correspondence then representatives of each
part with full settlement authority will meet at a mutual agreeable time
and place within ten (10) business days of the date of the initial notice
in order to exchange relevant information and perspectives, and to attempt
to resolve the dispute. If the dispute is not resolved by these
negotiations, the matter will be submitted to J.A.M.S/ENDISPUTE, or its
successor, for binding arbitration; and
(ii) If the parties are unable to resolve the dispute, claim or
controversy arising out of or relating to this Agreement pursuant to the
above subparagraph b., such dispute, claim or controversy shall be
submitted to final and binding arbitration before J.A.M.S/ENDISPUTE, or
its successor, pursuant to the United States Arbitration Act, 9 U.S.C.
Sec. 1 et seq. Either party may commence the arbitration process called
for in this Agreement by filing a written demand for arbitration with
J.A.M.S/ENDISPUTE, with a copy to the other party. The arbitration will be
conducted in accordance with the provisions of J.A.M.S/ENDISPUTE's
Streamlined Arbitration Rules and Procedures in
<PAGE>
18
effect at the time of filing of the demand for arbitration. The parties
will cooperate with J.A.M.S/ENDISPUTE and with one another in selecting an
arbitrator from J.A.M.S/ENDISPUTE's panel of neutrals, and in scheduling
the arbitration proceedings. The parties covenant that they will
participate in the arbitration in good faith, and that they will share
equally in its costs. The provisions of this Paragraph may be enforced by
any court of competent jurisdiction, and the party seeking enforcement
shall be entitled to an award of all costs, fees and expenses, including
attorneys fees, to be paid by the party against whom enforcement is
ordered.
12. MISCELLANEOUS:
12.1 FORCE MAJEURE: Neither party shall be considered in default of this
Agreement or be liable for damage for any failure of performance hereunder
occasioned by an act of God, force of nature, war or warlike activity,
insurrection or civil commotion, labor dispute, lock out (whether or not such is
under the parties' control, transportation delay, governmental regulatory action
whether or not with proper authority or other cause similar or dissimilar to the
foregoing and beyond its reasonable control, provided the party so affected
gives prompt notice to the other. In the event of a suspension of any obligation
by reason of this section which extends beyond ten (10) days, the party not
affected may, at its option, elect to cancel those aspects of this Agreement
which are reasonably feasible to terminate. Such cancellation shall be effective
thirty (30) days after written notice of such cancellation has been given to the
other party.
12.2 NOTICE: Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given and received on the date
of delivery or on the third (3rd) business day following the date of mailing of
the same, or on the day of transmission by telecopier or other form of recorded
communication service of the same, as the case may be to the party to be
notified at the addresses set forth below:
If to Blockbuster: Blockbuster Inc.
1201 Elm Street, 21st Floor
Dallas, Texas 75270
Attn: General Counsel
Facsimile: (214) 854-3677
cc: Chief Executive Officer
If to USHV: Universal Studios Home Video
70 Universal City Plaza
Universal City, California 91608
Attn: Executive Vice President & Chief
Operating Officer
Facsimile: 818-866-2638
with copy to: Universal Family and Home Entertainment Productions
70 Universal City Plaza
Universal City, California 91608
Attn: Executive Vice President
Facsimile: 818-866-0860
<PAGE>
19
or such other address as may be designated by either party by written notice to
the other as hereinabove provided.
12.3 ENTIRE AGREEMENT: This Agreement, together with all Exhibits attached
hereto, represents the entire agreement and understanding between the parties
with respect to the subject matter of this Agreement, and supersedes any other
agreement or understanding, written or oral, that the parties hereto may have
had with respect thereto. No statement or inducement with respect to the subject
matter by either party or by any agent or representative of either party which
is not contained in this Agreement shall be valid or binding between the
parties.
12.4 RELATIONSHIP OF PARTIES: The parties are independent contractors, and
nothing in this Agreement shall be deemed or construed to create, or have been
intended to create a partnership, joint venture, employment or agency
relationship between the parties. Each party agrees that it neither has nor will
give the appearance or impression of possessing the legal authority to bind or
commit any other party in any way except as provided in this Agreement.
12.5 EFFECT OF HEADINGS: The headings and subheadings of the sections of
this Agreement are inserted for convenience of reference only and shall not
control or affect the meaning or construction of any of the agreements, terms,
covenants and conditions of this Agreement in any manner.
12.6 CONSTRUCTION: The Agreement has been fully reviewed and negotiated by
the parties and their respective legal counsel. Accordingly, in interpreting
this Agreement, no weight shall be placed upon which party or its counsel
drafted the provision being interpreted.
12.7 SEVERABILITY: If any term or provision of this Agreement shall be
found to be void or contrary to law, such term or provision shall, but only to
the extent necessary to bring this Agreement within the requirements of law, be
deemed to be severable from the other terms and provisions of this Agreement,
and the remainder of this Agreement shall be given effect as if the parties had
not included the severed term herein.
<PAGE>
20
12.8 AMENDMENTS: No provision of this Agreement may be modified, waived or
amended except by a written instrument duly executed by each of the parties. Any
such modifications, waivers or amendments shall not require additional
consideration to be effective.
12.9 COUNTERPARTS: This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12.10 IMPLIED WAIVER: Any failure on the part of either party to insist
upon the performance of this Agreement or any part of this Agreement, shall not
constitute a waiver of any right under this Agreement.
12.11 ASSIGNMENT: Neither party may assign its rights or delegate its
obligations under this Agreement without the other party's prior written
consent, subject to the following: (i) as to USHV, USHV may assign its rights
or delegate its obligations under this Agreement to an Affiliate, provided
that such entity obtains or retains substantially the same access to the
trade names/trademarks of USHV and the Home Video Distribution Rights to USHV
"new" (i.e., yet-to-be-released) theatrical releases as USHV enjoyed
immediately prior to the applicable transfer; and (ii) USHV shall have the
right to assign its right to receive payments to any entity hereunder; and
(ii) as to Blockbuster, Blockbuster may assign its rights or delegate its
obligations under this Agreement, to an Affiliate, provided that such
assignment is coextensive with an assignment of all or substantially all the
video rental business of Blockbuster.
12.12 SURVIVAL: All representations, warranties and indemnities made
herein shall survive the termination of this Agreement and shall remain in full
force and effect for a period of two (2) years. All of the party's rights and
privileges, to the extent they are fairly attributable to events or conditions
occurring or existing on or prior to the termination of this Agreement, shall
survive termination and shall be enforceable by such party and its successors
and assigns.
12.13 CONFIDENTIALITY: Except as otherwise required by applicable federal
and state laws, or as may be required for the preparation of tax returns or
other legally required documents or as reasonably necessary to the employees,
agents, lawyers, accountants, or auditors of either party, or in any action to
enforce the provisions hereof, each party shall keep the information regarding
the details of this Agreement confidential and restrict dissemination to each of
its own personnel and to third parties to only a "need to know" basis, using the
standard of care which each uses to protect its own information from disclosure
thereafter. The party disclosing confidential information to its own personnel
and third parties shall require that these persons be bound by the
confidentiality obligations set forth in this Agreement. In addition to the
foregoing, the parties must keep all information provided by each other in
accordance with this
<PAGE>
21
Agreement confidential and any unauthorized disclosure shall be considered a
material breach of this Agreement. Any press release issued hereunder by either
party must be approved in writing by the other party prior to its release.
12.14 GOVERNING LAW: This Agreement shall be constructed in accordance
with the laws of the State of New York without regard to its rules on
conflicts of law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date and year first above
written.
UNIVERSAL STUDIOS HOME VIDEO BLOCKBUSTER INC.
Name: William P. Clark Name: Edward B. Stead
-------------------------------- --------------------------------
Signature: /s/ William P. Clark Signature: /s/ Edward B. Stead
--------------------------- ---------------------------
Title: Executive Vice President & Title: EVP
Chief Operating Officer -------------------------------
-------------------------------
<PAGE>
Exhibit A
Blockbuster Direct Revenue Sharing Matrix
*
----------
* Confidential material omitted and separately filed with the Commission
under an application for confidential treatment. Two pages have been
omitted from Exhibit A.
<PAGE>
Exhibit B
Spanish Sub-titled Matrix to be negotiated and inserted at a later date.
<PAGE>
Exhibit C
Accounting Calendar
(See Attached)
<PAGE>
1998 Accounting Calendar
Jan. 1- U.S. Corporate Holiday
Jan. 2- U.S. Corporate Holiday
Jan. 11- Video Pay Period
Jan. 16- A/P Close Complete
Jan. 17- GELCO Cut-Off
Jan. 25- Last day of JDE accounting period, Video Pay Period
Feb. 8- Video Pay Period
Feb. 13- A/P Close Complete
Feb. 14- GELCO Cut-Off
Feb. 22- Last day of JDE accounting period, Video Pay Period
March 8- Video Pay Period
March 20- A/P Close Complete
March 21- GELCO Cut-Off
March 22- Video Pay Period
March 29- Last day of JDE accounting period
April 5- Video Pay Period
April 17- A/P Close Complete
April 18- GELCO Cut-Off
April 19- Video Pay Period
April 26- Last day of JDE accounting period
May 3- Video Pay Period
May 15- A/P Close Complete
May 16- GELCO Cut-Off
May 17- Video Pay Period
May 24- Last day of JDE accounting period
May 25- U.S. Corporate Holiday
May 31- Video Pay Period
June 14- Video Pay Period
June 19- A/P Close Complete
June 20- GELCO Cut-Off
June 28- Last day of JDE accounting period, Video Pay Period
July 3- U.S. Corporate Holiday
July 12- Video Pay Period
July 17- A/P Close Complete
<PAGE>
July 18- GELCO Cut-Off
July 26- Last day of JDE accounting period, Video Pay Period
Aug. 9- Video Pay Period
Aug. 15- GELCO Cut-Off
Aug. 23- Last day of JDE accounting period, Video Pay Period
Sept. 6 - Video Pay Period
Sept. 7 - U.S. Corporate Holiday
Sept. 18- A/P Close Complete
Sept. 19- GELCO Cut-Off
Sept. 20- Video Pay Period
Sept. 27- Last day of JDE accounting period
Oct. 4- Video Pay Period
Oct. 16- A/P Close Complete
Oct. 17- GELCO Cut-Off
Oct. 18- Video Pay Period
Oct. 25- Last day of JDE accounting period
Nov. 1- Video Pay Period
Nov. 14- GELCO Cut-Off
Nov. 13- A/P Close Complete
Nov. 15- Video Pay Period
Nov. 22- Last day of JDE accounting period
Nov. 26- U.S. Corporate Holiday
Nov. 27- U.S. Corporate Holiday
Nov. 29- Video Pay Period
Dec. 13- Video Pay Period
Dec. 18- U.S. Corporate Holiday, A/P Close Complete
Dec. 19- GELCO Cut-Off
Dec. 27- Last day of JDE accounting period, Video Pay Period
1999 Accounting Calendar
Jan. 1- U.S. Corporate Holiday
Jan. 10- Video Pay Period
Jan. 18- U.S. Corporate Holiday
Jan. 24- Last day of JDE accounting period, Video Pay Period
<PAGE>
Feb. 7- Video Pay Period
Feb. 21- Video Pay Period, Last day of JDE accounting period
March 7- Video Pay Period
March 21- Video Pay Period
March 28- Last day of JDE accounting period
April 4- Video Pay Period
April 18- Video Pay Period
April 25- Last day of JDE accounting period
May 2- Video Pay Period
May 16- Video Pay Period
May 23- Last day of JDE accounting period
May 24- U.S. Corporate Holiday
May 30- Video Pay Period
June 13- Video Pay Period
June 27- Video Pay Period, Last day of JDE accounting period
July 5- U.S. Corporate Holiday
July 11- Video Pay Period
July 25- Last day of JDE accounting period, Video Pay Period
Aug. 8- Video Pay Period
Aug. 22- Video Pay Period, Last day of JDE accounting period
Sept. 5- Video Pay Period
Sept. 6- U.S. Corporate Holiday
Sept. 19- Video Pay Period
Sept. 26- Last day of JDE accounting period
Oct. 3- Video Pay Period
Oct. 17- Video Pay Period
Oct. 24- Last day of JDE accounting period
Oct. 31- Video Pay Period
Nov. 14- Video Pay Period
Nov. 21- Last day of JDE accounting period
Nov. 25- U.S. Corporate Holiday
Nov. 26- U.S. Corporate Holiday
Nov. 28- Video Pay Period
<PAGE>
Dec. 12 - Video Pay Period
Dec. 23 - U.S. Corporate Holiday
Dec. 24 - U.S. Corporate Holiday
Dec. 26 - Video Pay Period, Last day of JDE accounting period
<PAGE>
Exhibit D
Electronic Reporting Format
(See Attached)
<PAGE>
BLOCKBUSTER ENTERTAINMENT - Exhibit D
DAILY DETAIL TRANSACTION FILES BY ELECTRONIC TRANSFER
Revenue Sharing Standard Record Layout
HEADREC FB (102 31926)
START-ID 01 6 A Constant "STADET"
TRAN-EDATE 08 08 A Transaction From Date
TRAN-LDATE 17 08 A Transaction To Date
OUT-DATE-CC 26 02 N File Creation Date
OUT-DATE-YY 28 02 N
OUT-DATE-MM 30 02 N
OUT-DATE-DD 32 02 N
FILE TAILREC FB (102 31926)
END-ID 01 6 A Constant "ENDDET"
NO-TRANS 08 7 N Number of Transactions
TOT-REV 16 12 N 2 Total Revenue
FILE OUTFILE FB (102 31926)
OUT-TITLE 1 40 A Title Name
FILLER1 41 1 A
OUT-UPC 42 13 A UPC
FILLER2 55 1 A
OUT-DAYS-OUT 56 1 N Number of Days out
FILLER3 57 1 A
OUT-REV 58 5 N 2 Revenue
OUT-SIGN 63 1 A Sign "-" for negative
FILLER4 64 1 A
OUT-TRAN 65 2 A Tran Type R=Rental, P=Put, L=Late Fee
FILLER5 67 1 A
OUT-TRAN-DATE 68 8 A Tran Date YYYYMMDD
FILLER6 76 1 A
Bar code is a unique code
OUT-BAR-STORE 77 05 A Store Number
OUT-BAR-PART 82 06 A Part Number
OUT-BAR-CPYNO 88 03 A
FILLER7 91 01 A
OUT-CUST-NO 92 05 A Customer Number
FILLER8 97 01 A
OUT-STORE-NO 98 05 A Store Number
D-1