Distribution Agreement - DreamWorks LLC and DreamWorks Animation SKG Inc.
DISTRIBUTION AGREEMENT
BETWEEN
DREAMWORKS L.L.C.
AND
DREAMWORKS ANIMATION SKG, INC.
DATED AS OF OCTOBER 7, 2004
<PAGE>
SECTION 1. DEFINITIONS AND USAGE........................................ 3
SECTION 2. GRANT OF RIGHTS; PERIOD OF DISTRIBUTION...................... 19
SECTION 3. DEVELOPMENT, PRODUCTION, ACQUISITION, PAYMENT OBLIGATIONS
AND DELIVERY .............................................. 21
SECTION 4. DISTRIBUTION................................................. 25
SECTION 5. DISTRIBUTION EXPENSES -- APPROVALS AND CONTROLS.............. 38
SECTION 6. DISTRIBUTION EXPENSES ACCOUNTING............................. 40
SECTION 7. DISTRIBUTION FEES............................................ 41
SECTION 8. GROSS RECEIPTS............................................... 42
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS................... 53
SECTION 10. INDEMNITY.................................................... 56
SECTION 11. DEFAULT; REMEDIES AND TERMINATION............................ 57
SECTION 12. MUTUAL SECURITY AGREEMENTS AND DOCUMENTS..................... 63
SECTION 13. COPYRIGHT.................................................... 64
SECTION 14. OWNERSHIP.................................................... 65
SECTION 15. INVENTORY OF MATERIALS....................................... 65
SECTION 16. FORCE MAJEURE................................................ 66
SECTION 17. ASSIGNMENT................................................... 66
SECTION 18. STANDARD OF CARE............................................. 67
SECTION 19. DISTRIBUTOR DISTRIBUTION CREDIT.............................. 67
SECTION 20. OTHER ACTIVITIES............................................. 68
SECTION 21. EXERCISE OF DISCRETION....................................... 68
SECTION 22. NO PARTNERSHIP OR THIRD PARTY BENEFIT........................ 69
SECTION 23. INTEGRATION/FORMALITIES...................................... 69
SECTION 24. DISPUTE RESOLUTION........................................... 69
SECTION 25. SEVERABILITY OF PROVISIONS................................... 70
SECTION 26. WAIVER....................................................... 70
SECTION 27. GOVERNING LAW................................................ 70
SECTION 28. CONFIDENTIALITY.............................................. 71
SECTION 29. NOTICE OF REPRESENTATIVES.................................... 72
SECTION 30. PARAGRAPH HEADINGS........................................... 72
SECTION 31. INTELLECTUAL PROPERTY LICENSE................................ 72
SECTION 32. DISCLOSURE, COMPLIANCE AND REPORTING OBLIGATIONS............. 72
SECTION 33. LIMITATIONS ON DISTRIBUTOR RESPONSIBILITY.................... 73
SECTION 34. NOTICES...................................................... 73
SECTION 35. COUNTERPARTS................................................. 73
SCHEDULE 1 DISTRIBUTION SERVICING AGREEMENTS............................ 1
1
<PAGE>
SCHEDULE 2 MAJOR INTERNATIONAL TERRITORIES.............................. 1
SCHEDULE 3 DELIVERY REQUIREMENTS........................................ 1
SCHEDULE 4 RELEASE DATES - PRIOR PICTURES............................... 1
SCHEDULE 5 THIRD PARTY SERVICE AGREEMENTS............................... 1
EXHIBIT A INSTRUMENT OF TRANSFER....................................... 1
2
<PAGE>
DISTRIBUTION AGREEMENT dated as of October 7, 2004 (this "Agreement"), by
and between DreamWorks Animation SKG, Inc. ("DWA") and DreamWorks L.L.C.
("Distributor").
WHEREAS DWA is principally devoted to developing, producing and acquiring
feature-length theatrical animated motion pictures and other animated
productions;
WHEREAS Distributor is engaged, inter alia, in the business of
distributing feature length theatrical motion pictures and other productions in
all media throughout the world; and
WHEREAS DWA desires to grant to Distributor a license to distribute and
exploit Licensed Pictures (as defined hereunder), and Distributor desires to
enter into such license on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, DWA and Distributor hereby agree as follows:
SECTION 1. DEFINITIONS AND USAGE
1.1 Definitions:
Accepted Additional Picture(s) shall mean an Additional
Picture with respect to which Distributor has licensed certain Distribution
Rights pursuant to Section 2.1.c. below.
Additional Picture(s) shall mean (i) all Animated Motion
Pictures and Hybrid Motion Pictures intended for initial Theatrical Exhibition
(a) that do not fully satisfy each of the specifications set forth in Section
3.2.b. below, but (b) that are either (1) produced by DWA or any controlled
Affiliate (solely or in conjunction with another entity) and available for
Delivery prior to expiration of the Output Term, or (2) acquired by DWA or any
controlled Affiliate, available for Delivery prior to expiration of the Output
Term and for which any Distribution Rights have been obtained by DWA for the
Territory; (ii) all DTV Productions (a) that do not fully satisfy each of the
specifications set forth in Section 3.2.c. below, but (b) that are either (1)
produced by DWA or any controlled Affiliate (solely or in conjunction with
another entity) and available for Delivery prior to expiration of the Output
Term, or (2) acquired by DWA or any controlled Affiliate, available for Delivery
prior to expiration of the Output Term and for which any Distribution Rights
have been obtained by DWA for the Territory; and (iii) any Motion Pictures or
other audiovisual programs that Distributor is required to license or otherwise
provide rights to a party to a DWA-approved Distribution Servicing Agreement.
Control when used with respect to any specified Person means
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
Affiliate of Any Person shall mean any other Person
controlling, controlled by or under common control with such Person. For
purposes of this Agreement, Distributor and DWA are not Affiliates of each
other.
3
<PAGE>
Animated Motion Picture(s) shall mean any Motion Picture that
is created predominantly by one or more non-live action production methods
(e.g., hand-drawn animation [such as Prince of Egypt], CGI [such as Shrek],
stop-motion [such as Chicken Run] and/or motion capture [such as Polar Express])
(each, an "Animation Method"). However, a Motion Picture shall not be deemed to
be an Animated Motion Picture if digital Animation Method(s) are used, in whole
or in part, to create photorealistic characters that interact with live-action
characters in live-action settings. (Photorealistic characters include both
"real world" characters modified by an Animation Method [e.g., Babe the pig in
Babe] and characters that are invented but which are depicted in a "real world"
manner by an Animation Method [e.g., Yoda in Star Wars II: Attack of the Clones,
Gollum in Lord of the Rings, the dinosaurs in Jurassic Park, the robots in I,
Robot, the toy soldiers in Small Soldiers].)
Business Day shall mean a day other than a Saturday, Sunday or
other day on which financial institutions in Los Angeles, California are
authorized or required by law to close.
CJ Agreement shall mean collectively the Theatrical
Distribution Agreement, amended and restated as of February 10, 1999, between
Distributor and Cheil Jedang Corporation ("Cheil"), the Home Video Fulfillment
Services Agreement, amended and restated as of February 10, 1999, between
Distributor and Cheil, each as may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms hereof, and
all related agreements with respect to one or more Licensed Pictures between
Distributor and Cheil or CJ Entertainment, Inc. (together with Cheil
collectively "CJ Entertainment").
Commercial Tie-in and Promotional Rights shall mean, with
respect to each Licensed Picture, the right to use or license the use of
characters, designs, visual representations, names, logos, props, physical
properties or other elements appearing or used in or in connection with such
Licensed Picture or all or any part of the Literary Material in connection with
(i) the advertising, publicizing, marketing, promotion and/or packaging of
merchandise, products or services and/or (ii) premiums or promotions.
Contingent Compensation shall mean, with respect to each
Licensed Picture, contractually required payments to or on behalf of any Person
providing rights or services, or otherwise involved in the production of such
Licensed Picture, payable in respect of such Licensed Picture, which (i) are
dependent in whole or in part on box office, gross receipts, net receipts, or a
percentage of such gross receipts or net receipts, and are payable in a fixed or
allocable amount or as a percentage of such receipts, and/or (ii) are payable in
a fixed amount upon the occurrence of a specified event such as receipt of an
Academy Award or the sale of a specified number of Video Devices.
Copyright Revenue shall mean, with respect to each Licensed
Picture, all royalties, fees and other revenue that DWA, or the registered
copyright owner, is otherwise entitled to collect by reason of any statute,
governmental regulation or operation of law, based upon or in connection with,
in whole or in part, or directly or indirectly, any use of such Licensed Picture
from time to time pursuant to any exercise of the Distribution Rights and
4
<PAGE>
Licensed Marks, including the retransmission of the signal embodying the
Television Exhibition of any such Licensed Picture, commonly referred to as
retransmission royalties and/or the sale of blank cassettes and/or recording
apparatus for the purpose of recording the signal embodying the Television
Exhibition of any such Licensed Picture, commonly referred to as private copy
levies and/or from the rental of pre-recorded Video Devices to consumers,
commonly referred to as video rental right levies, provided that Copyright
Revenue shall in no event include any of the foregoing royalties, fees or
revenue arising from the Retained Rights unless any such Retained Rights are
required to be included in the Distribution Rights pursuant to any DWA-approved
Distribution Servicing Agreement.
Delivery shall mean delivery to Distributor of all items
referenced in Section 3.2.a. hereof. A Licensed Picture shall be deemed to be
Delivered hereunder only upon Distributor's receipt of all such items (the
"Delivery Date").
Distribution Expenses shall mean, with respect to each
Licensed Picture, the sum of:
All actual, direct out-of-pocket costs, charges and expenses (other than
Distributor's overhead expenses) accrued (i.e. 45 days after being accrued,
provided such costs, charges and expenses are paid no more than 30 days
thereafter), or otherwise when paid by Distributor or any Affiliate arising out
of the exhibition, exploitation and use of such Licensed Picture, and the
distribution, advertising, marketing, publicity, promotion, market exploitation,
and turning to account of such Licensed Picture whether directed to the public
or to exhibitors, retailers or wholesalers dealing with such Licensed Picture in
or for any and all Distribution Rights throughout the Territory, including all
direct out-of-pocket costs, charges and expenses for:
(i) Marketing Materials (as defined in Section 4.4);
(ii) advertising space in any print or electronic media;
(iii) film festivals, premieres, preview screenings and other
"special events" promoting the Licensed Picture, sales
presentations, local or regional marketing conventions and
marketing presentations for a designated Licensed Picture (or
an allocable portion of such costs if other Motion Pictures
are also included), talent touring, and all associated
expenses incurred in connection with the foregoing, such as
travel, living expenses and accommodations of talent or any of
Distributor's employees (excluding straight time regular
salaries but including overtime salaries) and subject to DWA's
prior approval, such expenses of any territory managers and
marketing managers of Subdistributors charged as Distribution
Expenses pursuant to applicable DWA-approved Distribution
Servicing Agreements;
(iv) prints, Video Devices or any other similar devices, including
for creation, manufacture, editing dubbing, subtitling,
rescoring, delivery and use of the foregoing or any other
means of exploitation now known or hereafter devised;
5
<PAGE>
(v) freight, shipping, transportation and storage costs for all
prints, Video Devices and Marketing Materials;
(vi) checking and collection of Gross Receipts;
(vii) trade dues and assessments by trade organizations;
(viii) taxes and government fees;
(ix) remittance and conversion of Gross Receipts;
(x) license fees, duties, other fees or any other amounts paid to
permit use of the Licensed Picture;
(xi) a proportionate share of errors and omissions insurance in
accordance with Section 10.b. below;
(xii) transaction fees imposed on credit card charges purchasing
admission to view the Licensed Picture;
(xiii) Home Video Distribution Expenses;
(xiv) the distribution of the Licensed Pictures incurred at the
direction of DWA, including any incremental costs to provide
DWA-requested distribution services or Information (as defined
in Section 4.1.c.) not available in Distributor's normal
course of business;
(xv) the prosecution, defense or settlement of any action directly
relating to Distributor's Exhibition or use of the Licensed
Pictures or any element thereof in accordance with the terms
of this Agreement, including any interest and penalties,
provided that all amounts recovered pursuant to any of the
aforementioned shall be included in Gross Receipts pursuant to
Section 8.1.f. below; and
(xvi) anti-piracy and security measures specific and incremental to
Licensed Pictures, such as security guards at prerelease
screenings and night-vision equipment charges.
"Distribution Expenses" shall not include (x) any of the foregoing costs,
charges, fees and expenses relating to the Retained Rights, except to the extent
such Retained Rights are required to be included in the Distribution Rights
pursuant to any DWA-approved Distribution Servicing Agreement, (y) Additional
Distribution Expenses (as defined in Section 5.2.), and (z) Residuals and
Contingent Compensation. Except for Distribution Expenses incurred in connection
with Retained Rights required to be included in the Distribution Rights pursuant
to any DWA-approved Distribution Servicing Agreement and Residuals (as more
fully set forth in Section 6.2.), Distributor shall have no responsibility for
any costs referenced in the foregoing clauses (x), (y) and (z). Distribution
Expenses shall be reduced by the net amount of any insurance recoveries
attributable thereto to the extent received by Distributor.
6
<PAGE>
Distribution Rights shall mean the following rights,
collectively, with respect to a Motion Picture:
a. The right to release, distribute, Exhibit, collect receipts
with respect to, and exploit, such Motion Picture during the applicable License
Term, throughout the applicable Territory or, with respect to any Motion Picture
acquired for Exhibition, in the territories and for the time periods set forth
in any applicable acquisition agreement, and in all media and by whatever means
whether now known or hereafter devised or created (including Internet Rights,
but excluding the Retained Rights), including in each case above with respect to
such Motion Picture and trailers thereof and excerpts and clips therefrom and
featurettes based thereon, in any and all languages and versions, including
dubbed, subtitled and narrated version, in any form and including:
(i) in connection with the marketing, distribution and exploitation
of such Motion Picture from time to time, the right: (A) to use and to authorize
others to use the title of such Motion Picture or to change such title (as
approved by DWA, except as otherwise provided in Section 4.2.d. below); (B) to
use and perform and to authorize others to use and perform any musical material
contained in such Motion Picture; and (C) subject to the requirements and
restrictions set forth in Section 4.2.d., any applicable acquisition agreement
and agreements with talent, including actors, producers and directors with
respect to any Motion Picture, to cut, edit, dub, subtitle and alter such Motion
Picture or any parts thereof as necessary for the effective marketing,
distribution and exploitation of such Motion Picture or to conform to
censorship, import permit and other legal requirements or to conform to time
segment or exhibition standards of distributors and exhibitors or to create
foreign language versions;
(ii) for purposes of advertising and publicizing such Motion Picture
from time to time in connection with the marketing, distribution and
exploitation of such Motion Picture, the right on a not for sale basis (other
than customary "for-sale" programs, e.g. customary souvenir programs in
connection with Theatrical Exhibition in Japan): (A) to publish and license and
authorize others to publish in any language, in any media and in such form as
any distributors and exhibitors deem advisable, synopses, summaries,
adaptations, resumes and stories of and excerpts from such Motion Picture and
from any literary, dramatic or musical material in such Motion Picture or upon
which such Motion Picture is based; (B) subject to any applicable acquisition
agreement and any agreements with talent with respect to such Motion Picture, to
use and authorize others to use the name, voice and likeness (and any simulation
or reproduction thereof) of any person appearing in or rendering services in
connection with such Motion Picture; (C) to exhibit and authorize others to
exhibit in any language by any media, including radio and television, excerpts
and clips from such Motion Picture and from any literary, dramatic or musical
material in such Motion Picture or upon which such Motion Picture is based; and
(D) subject to DWA's prior approval (not to be unreasonably withheld) and
licenses granted to any Person in connection with the exploitation of DWA's
Commercial Tie-In and Promotional Rights, to use and authorize others to use the
rights described above and Licensed Marks in the manufacture and distribution of
t-shirts, sweatshirts, posters and postcards and other items for theatrical and
other media promotions and publicity purposes only; and
7
<PAGE>
(iii) the right to use and authorize others to use all Tangible Film
Materials or, with respect to a Motion Picture acquired for Exhibition, all
Tangible Film Materials owned or otherwise available to DWA under the applicable
acquisition agreement;
b. The right to receive all Copyright Revenue, and the right
to receive or to arrange for the collection of Copyright Revenue resulting from
the secondary transmission or retransmission of such Motion Picture; and
c. All distribution rights required to be granted to any
Person pursuant to a DWA-approved Distribution Servicing Agreement or subject to
the requirements of a DWA-approved Third Party Service Agreement.
Distribution Servicing Agreement(s) shall mean any agreements
or arrangements between Distributor or a Distributor Affiliate, as one party,
and any Person, including any Subdistributor or licensee, as the other party,
with respect to (i) the Exhibition of one or more Licensed Pictures, (ii) the
exploitation of any Distribution Rights in a Licensed Picture, or (iii) the
exploitation of any Retained Rights as authorized or permitted by DWA with
respect to one or more Licensed Pictures, as such agreements may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms hereof.
Distributor Affiliate shall mean any Person that qualifies as
a controlled Affiliate of Distributor pursuant to the definitions of Affiliate
and Control set forth above.
DTV Production(s) shall mean all Animated Motion Pictures or
Hybrid Motion Pictures intended for initial Home Video Exhibition.
DWA - approved Distribution Servicing Agreement shall mean the
Cheil Agreement, the Kadokawa Agreement, the Universal Agreement and each
agreement set forth on Schedule 1 hereto, as such agreement may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms hereof.
DWA-approved Third Party Service Agreement shall mean each
agreement set forth on Schedule 5 hereto, as such agreement may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms hereof.
Effective Date shall mean the first day of the calendar
quarter preceding the Closing Date as defined in the Separation Agreement, or
such other date as mutually agreed between DWA and Distributor.
Exhibit shall mean transmit, display, exhibit or perform.
"Exhibiting" and "Exhibition" shall have correlative meanings.
Financial Benefit shall mean any and all advances, volume and
prompt payment discounts, laboratory and other vendor rebates or adjustments and
any other economic consideration or financial advantages offered to or accepted
by Distributor in connection with any transaction that relates to the services
of Distributor in connection with (i) the Licensed Pictures, (ii) the Licensed
Pictures and other Motion Pictures produced or distributed by Distributor, or
(iii) the exploitation of the DWA Distribution Rights hereunder.
8
<PAGE>
Good Faith Dispute shall mean any amount or provision that is
the subject in a bona fide disagreement between the parties.
Gross Receipts shall mean with respect to each Licensed
Picture, the amounts set forth in Section 8. below, subject to the adjustments
and exclusions as provided therein.
Home Video Distribution Expenses shall mean with respect to
each Licensed Picture, the aggregate of all actual, direct out-of-pocket costs,
charges and expenses (other than Distributor's overhead expenses) arising from
the manufacture, duplication, replication, sales, marketing, promotion and other
costs associated with exploitation and distribution of Video Devices. As used in
this definition:
(i) Manufacturing costs include the manufacture, packaging and shipping of
Video Devices, including costs with respect to re-editing, dubbing, subtitling,
closed captioning and narration for the deaf and blind, mastering, duplication,
replication, anti-piracy devices and anti-copy protection, raw material costs
including tape, disc, shell, box, label, sleeves, containers, stickers,
packaging materials and services including plastic wrapping, "pick, pack and
ship" and other physical distribution and handling services, freight,
transportation, warehousing, storage, processing of returns, degaussing and
disposal.
(ii) Sales and marketing costs include selling, advertising, and promotion
of Video Devices, including design, production, and manufacture (for the
purposes of Home Video Exhibition) of marketing and advertising materials, press
kits, advertising funding and rebates including co-operative advertising and
regional marketing funds, wholesale rebates, direct-to-consumer rebates, display
and point-of-purchase advertising, trailers, screening Video Devices, media
purchases, artwork graphics, fulfillment, promotions, mass merchant advertising,
advertising agency and consultant fees, sales incentive programs, anti-piracy
costs including an allocable portion of the dues and assessments payable with
respect to industry anti-piracy programs relating to Video Devices, research,
public relations fees, trade show and entertainment costs, commercial tie-ins,
mailers and sales commissions.
Home Video Exhibition shall mean all existing and future forms
of home entertainment, including the right to manufacture, package, market,
sell, rent, lease, Exhibit, distribute and otherwise exploit all forms of home
video, including videocassettes, cartridges, laserdiscs, videograms, tapes,
CD-Rom, CD-I, DVD, VCD, near video-on-demand, subscription-video-on-demand,
video-on-demand and any other format, platform or device (collectively "Video
Devices"), now known or hereafter devised, intended primarily for use in the
home in conjunction with a reproduction apparatus or delivery system that causes
a visual image (whether or not synchronized with sound) to be viewed on the
screen of a television receiver, television monitor, computer or comparable
device now known or hereafter devised, including future methods and means of
delivering Video Devices into the home.
Hybrid Motion Picture(s) shall mean any Motion Picture that is
predominantly live-action, but in which at least two of the four characters with
the most screen time, or in which a majority of the characters with speaking
roles, are created (non-
9
<PAGE>
photorealistically) by an Animation Method. Who Framed Roger Rabbit, Looney
Tunes - Back in Action and Space Jam would be Hybrid Motion Pictures.
Interactive Rights shall mean the interactive use of any
portion or element of the Licensed Picture in any packaged product in digital
electronic entertainment software formats and configurations only in which the
user interacts with the game for amusement purposes (as opposed to informational
or educational purposes),including: (a) in video game or activity formats,
including those designed or created for handheld electronic devices (e.g., Game
Boy Color), or for platforms such as personal computers, personal digital
assistants, console game machines, PC based games, games playable via DVD and
similar micro-processor based devices, and all other handheld electronic devices
and all other platforms now known or hereafter devised, and (b) in games,
activities or other content available for use on a generally accessible or
proprietary network such as the Internet and other digital delivery systems
(e.g., online shopping, online gaming, multi-player gaming), or a delivery
service over cable lines, telephone lines, microwave signals, radio waves,
satellite, wireless or any other service or method now known or hereafter
invented available for the delivery or transmission of interactive entertainment
software products.
Internet Rights shall mean the exclusive right, under
copyright and otherwise, to distribute, Exhibit, broadcast and otherwise exploit
the Licensed Picture by means of one or more wired and wireless electronic or
electromagnetic networks (including fiber optic, microwave, twisted pair copper
wires, coaxial cable, satellite, cellular networks and any combinations thereof)
and collections thereof now or hereafter existing for the transmission of
digital and/or optical data (e.g., text information, graphics, audio, video and
combinations thereof) through the use of any protocols or standards now existing
or hereafter devised (including Transmission Control Protocol/Internet Protocol
or other architecture, and any subsequent extensions, modifications and
refinements to the foregoing, from or to electronic devices (e.g., computers,
set-top boxes, handheld devices, cable modems, personal digital assistants,
cellular telephones, televisions) capable of receiving digital and/or optical
data or information wherever located, whether open or proprietary, public or
private and whether or not a fee is charged or a subscription or membership is
required in order to access such networks. The Internet includes the computer
network comprising inter-connected networks commonly referred to as the
"Internet" and the "World Wide Web", whether using means, methods, processes,
media or technology now or hereafter existing. It is specifically acknowledged
and agreed that Internet Rights shall include the right to "download" (as such
term is used in the Internet industry) the Licensed Picture as well as the right
to "stream" (as such term is used in the Internet industry) the Licensed
Picture, whether at a time determined by the end user or any third party.
Kadokawa Agreement shall mean the Master Agreement dated as of
April 22, 2004 among Distributor, Kadokawa Entertainment Inc. ("Kadokawa") and
Kadokawa Holdings Inc., as Guarantor, including Exhibits A, B, C and D attached
thereto, as the same may be amended, restated, supplemented or otherwise
modified from time to time in accordance with the terms hereof.
Legitimate Stage Rights shall mean the right to present
Literary Material upon the spoken stage with live performers appearing and
speaking in the immediate presence of
10
<PAGE>
the viewing audience. The right to present Literary Material upon the spoken
stage with live performers appearing and speaking, whether or not in the
immediate presence of a viewing audience, for the primary purpose of
photographing and recording such presentation for use in or in connection with a
Licensed Picture or for the promotion or publicity of a Licensed Picture is an
exercise of rights with respect to such Licensed Picture and not an exercise of
Legitimate Stage Rights.
License Term shall mean:
a. With respect to Qualified Pictures Delivered to Distributor during the
Output Term, the period commencing on the date such Qualified Picture is
Delivered to Distributor and ending the earlier of (i) sixteen (16) years after
the Qualified Picture's Release Date in the Domestic Territory, or (ii)
seventeen (17) years after Delivery of the Qualified Picture;
b. With respect to Prior Pictures, the period commencing on the Effective
Date and ending on the date that is sixteen (16) years after each Prior
Picture's Release Date in the Domestic Territory, as such Release Dates are set
forth on Schedule 4;
c. With respect to Accepted Additional Pictures (excluding DTV Productions
licensed as Accepted Additional Pictures hereunder) Delivered to Distributor
during the Output Term, the period commencing on the date such Accepted
Additional Picture is Delivered to Distributor and ending on the date which is
the earlier of (i) sixteen (16) years after the Accepted Additional Picture's
Release Date in the Domestic Territory, or (ii) seventeen (17) years after the
Delivery of the Accepted Additional Picture; or (iii) the full term of
Distribution Rights owned or controlled by DWA or any controlled Affiliate and
licensed to Distributor hereunder with respect to such Accepted Additional
Picture;
d. With respect to Accepted Additional Pictures that are also DTV
Productions Delivered to Distributor during the Output Term, the period
commencing on the date such DTV Production is Delivered to Distributor and
ending on the date which is the earlier of (i) ten (10) years after such DTV
Production's HV Release Date in the Domestic Territory, or (ii) 126 months after
such DTV Production is Delivered to Distributor, or (iii) the full term of
Distribution Rights owned or controlled by DWA or any controlled Affiliate and
licensed to Distributor hereunder with respect to such DTV Production.
e. With respect to Qualified DTV Productions, (i) if the HV Release Date
for such Qualified DTV Production occurred prior to the Effective Date, the
period commencing on the Effective Date and ending ten (10) years thereafter, or
(ii) if such Qualified DTV Production is Delivered on or after the Effective
Date, the period commencing on the Delivery Date and ending the earlier of (A)
ten (10) years after such Qualified DTV Production's HV Release Date in the
Domestic Territory, or (B) 126 months after such Qualified DTV Production is
Delivered to Distributor.
Notwithstanding the foregoing, the License Term shall be subject to earlier
termination in accordance with the terms hereof; provided that, subject to
Section 11.2.c. below, (i) the License Term and this Agreement, as and to the
extent they pertain to such Distribution Rights licensed to Distributor that are
also subject to any DWA-approved Distribution Servicing Agreement or
11
<PAGE>
the requirements of a DWA-approved Third Party Service Agreement, as applicable,
shall continue, and (ii) such Distribution Rights (and only such Distribution
Rights) shall continue to be licensed to Distributor in accordance with the
terms of this Agreement until the expiration or termination of each such
DWA-approved Distribution Servicing Agreement or DWA-approved Third Party
Service Agreement, as applicable, in accordance with the terms thereof.
Licensed Marks shall mean, with respect to each Licensed
Picture from time to time, to the extent related to the Distribution Rights and
to the extent of DWA's rights in the Licensed Marks in the Territory, the right
to use and sublicense the use of (i) the title of such Licensed Picture (to the
extent such title is a registered trademark) from time to time in any and all
print styles and forms in connection with the distribution, marketing and
promotion of such Licensed Picture, and all goodwill associated therewith or
symbolized thereby, and (ii) the DreamWorks Marks listed and depicted in
Schedule A to the Trademark License Agreement solely in connection with (x) the
exploitation of the Distribution Rights to such Licensed Picture, and (y) the
distribution, marketing and promotion of such Licensed Picture in accordance
with the terms hereof; provided the foregoing shall not permit or authorize the
use of the title of such Licensed Picture or the DreamWorks Marks in connection
with the exploitation of the Retained Rights.
Licensed Picture(s) shall mean the Qualified Picture(s), the
Prior Picture(s), the Qualified DTV Production(s) and the Accepted Additional
Picture(s).
Literary Material shall mean written matter, whether published
or unpublished, in any form, including a novel, book, article, treatment,
outline, poem, screenplay, teleplay, story, manuscript, letter, play or
otherwise, which may be included in or upon which a Licensed Picture may be
based in whole or in part.
Literary Publishing Rights shall mean, with respect to each
Licensed Picture, the right to publish, distribute and sell to the public
hardcover or soft-cover printed publications (and electronic copies of such
printed publications) of all or any part of the Literary Material or other
material (excluding music and/or lyrics) created for or produced in connection
with such Licensed Picture, including artwork, logos or photographic stills (but
solely to the extent that the right to make such use of such other material has
been separately obtained from the owner thereof), other than the publications
included within Merchandising Rights.
Merchandising Rights shall mean, with respect to each Licensed
Picture, the right to license, manufacture, distribute and sell articles of
merchandise and/or products (including toys, board and video games, novelties,
trinkets, souvenirs, wearing apparel, fabric, foods, beverages and cosmetics)
and the right to license, distribute and sell services that embody on or in such
merchandise, products or services Licensed Marks, characters, designs, visual
representations, names, likenesses and/or characteristics of actors, physical
properties or other materials appearing or used in or in connection with such
Licensed Picture or all or any part of the Literary Material and the right to
publish, distribute, and sell souvenir programs, picture books, comic books,
sing-along records and books, post cards, novelizations, photo novels,
illustration books, and activity books or booklets which embody on or in the
foregoing any or all of the characters, designs, visual representations, names,
likenesses and/or characteristics of
12
<PAGE>
actors, physical properties or other materials appearing or used in or in
connection with such Licensed Picture or all or any part of the Literary
Material.
Motion Picture(s) shall mean audiovisual product produced and
distributed of every kind and character whatsoever, including all present and
future technological developments, whether produced by means of any
photographic, electrical, electronic, mechanical or other processes or devices
now known or hereafter devised, and their accompanying devices and processes
whether pictures, images, visual and aural representations are recorded or
otherwise preserved for projection, reproduction, exhibition, or transmission by
any means or media now known or hereafter devised in such manner as to appear to
be in motion or sequence, including computer generated pictures and graphics
other than video games.
Music Publishing Rights shall mean, with respect to each
Licensed Picture, the right to register (in the name of the copyright owner) the
copyright of musical compositions created for such Licensed Picture, copy,
publish, distribute, license or sell the music and/or lyrics of musical
compositions and to license the right to make Sound Records of musical
compositions and to make Sound Records of musical compositions in
synchronization or timed relation with motion pictures and to license the
performance of musical compositions.
New Media Rights shall mean, with respect to each Licensed
Picture, the right to exploit such Licensed Picture in linear form, or any part
thereof in connection with advertising, marketing or promotion of such Licensed
Picture for distribution or exploitation, by any means, methods, processes,
media or technology now known (if not generally available or used as a means of
distribution to the general public) or hereafter developed as a means of
Exhibition or transmission in any form. For avoidance of doubt, Internet Rights
are not within the scope of New Media Rights.
Non-Theatrical Exhibition shall mean, with respect to each
Licensed Picture, all forms of non-theatrical distribution, including the right
to Exhibit such Licensed Picture (i) on airplanes, trains, ships and other
common carriers, (ii) in schools, colleges and other educational institutions,
libraries, governmental agencies, business and services organizations and clubs,
churches and other religious oriented groups, museums, and film societies
(including transmission of such Licensed Picture 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, industrial sites, offshore drilling rigs, logging camps, and remote
forestry and construction camps (including transmission of such Licensed
Pictures by closed circuit within the immediate area of the origin of such
exhibition).
Output Term shall mean the period commencing on the Effective
Date and continuing until the later of (i) Delivery of twelve (12) Qualified
Pictures to Distributor, and (ii) December 31, 2010. The Output Term shall be
subject to earlier termination in accordance with the terms hereof; provided,
however, subject to Section 11.2.c. below, the Output Term for Motion Pictures
produced or acquired by DWA or any controlled Affiliate shall extend as and to
the extent required pursuant to any DWA-approved Distribution Servicing
Agreement or the requirements of any DWA-approved Third Party Service Agreement,
and the Distribution Rights to such Motion Pictures, including the Licensed
Pictures hereunder, shall continue to be licensed to Distributor in accordance
with the terms of this Agreement as and to the extent Distributor is
13
<PAGE>
required to provide such Motion Pictures to any Person pursuant to any
DWA-approved Distribution Servicing Agreement or DWA-approved Third Party
Service Agreement, as applicable, until the expiration or termination thereof.
Outright Sale shall mean a license from Distributor to a
Person to Exhibit a Licensed Picture for a specified period of time in excess of
one year, without any obligations on the part of such Person to account to
Distributor for revenue and expenses received or incurred by such Person.
Person shall mean any individual, corporation, limited
liability company, estate, partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated organization
or government or any agency or political subdivision thereof.
Prior Picture(s) shall mean the following Animated Motion
Pictures: Antz; The Prince of Egypt; The Road to Eldorado; Chicken Run; Shrek;
Spirit: Stallion of the Cimarron; Sinbad: Legend of the Seven Seas; and Shrek 2.
Qualified DTV Production(s) shall mean all Animated Motion
Pictures or Hybrid Motion Pictures intended for initial Home Video Exhibition
(i) released prior to the Effective Date and designated as a Qualified DTV
Production hereunder, or that will be initially released or available for
release during the Output Term, (ii) that are either (A) financed or produced by
DWA or any controlled Affiliate (solely or in conjunction with another Person)
and available for Delivery prior to expiration of the Output Term, or (B)
acquired by DWA or any controlled Affiliate, available for Delivery prior to
expiration of the Output Term and for which DWA or any controlled Affiliate has
obtained any Distribution Rights in the Territory, and (iii) fully satisfy all
of the specifications set forth in Section 3.2.c. below. Joseph: King of Dreams
is designated as a Qualified DTV Production hereunder.
Qualified Picture(s) shall mean all Animated Motion Pictures
and Hybrid Motion Pictures intended for initial Theatrical Exhibition that (i)
are either (a) produced by DWA or any controlled Affiliate (solely or in
conjunction with another entity) and available for Delivery prior to the
expiration of the Output Term, or (b) acquired by DWA or any controlled
Affiliate and available for Delivery prior to expiration of the Output Term and
for which any Distribution Rights have been obtained for the Territory; and (ii)
fully satisfy all of the specifications set forth in Section 3.2.b. below.
Distributor and DWA acknowledge and agree that the Animated Motion Picture
currently entitled Shark Tale shall constitute one of the twelve (12) Qualified
Pictures hereunder.
Radio Rights shall mean the right to transmit sound alone by
means of radio devices.
Rent-a-System Picture shall mean an Animated Motion Picture or
Hybrid Motion Picture with respect to which DWA acquires only a license to
exercise certain rights pursuant to an arms-length agreement with an
unaffiliated third party, the applicable license agreement does not obligate DWA
to pay an advance or minimum guarantee for such Motion Picture and under the
license agreement DWA is entitled to receive or retain a customary rent-a-
14
<PAGE>
system distribution fee and such unaffiliated third party is obligated either to
advance, guarantee or to pay on a full recourse basis all distribution expenses
which may be incurred by DWA.
Residuals shall mean, with respect to each Licensed Picture,
payments to third parties required (i) pursuant to collective bargaining, union
or guild agreements applicable to DWA for the exploitation of such Licensed
Picture, including residuals, pension, health and welfare payments, and employer
share of taxes, or (ii) for performance, synchronization, recording, re-use and
video levies, patent, trademark and similar licenses as governmental
requirements, incurred for the distribution or turning to account of such
Licensed Picture, or rights derived therefrom, in the case of each of clauses
(i) and (ii) above, for use of such Licensed Picture in any and all media,
including Theatrical Exhibition, Television Exhibition and Home Video Exhibition
or any format or version of such Licensed Picture, throughout the Territory.
Retained Rights shall mean, with respect to each Licensed
Picture, (i) the exclusive ownership rights set forth in Section 14. below,
including all pre-existing DWA characters, properties or other elements owned or
controlled by DWA or any controlled Affiliates; (ii) rights in acquired Licensed
Pictures retained by the previous owners and/or producers thereof or previously
granted to third parties; (iii) all rights to Subsequent Productions, unless and
until any such Subsequent Production becomes a Licensed Picture hereunder in
accordance with the terms hereof; (iv) Commercial Tie-in and Promotional Rights
(subject to Section 4.14. below); (v) Merchandising Rights; (vi) Interactive
Rights; (vii) Literary Publishing Rights; (viii) Music Publishing Rights and
Soundtrack Recording Rights, provided in connection with the Distribution
Rights, Distributor shall have an irrevocable license during the License Term of
each Licensed Picture to exploit musical works solely as embodied in such
Licensed Picture, and as may be reasonably necessary to market, advertise and
promote the Licensed Picture; (ix) Radio Rights, provided in connection with the
Distribution Rights, Distributor shall have the right during the License Term of
each Licensed Picture to transmit sound alone excerpts from the Licensed Picture
by means of radio devices solely for purposes of advertising, publicizing,
marketing and promoting the Licensed Picture; (x) Legitimate Stage Rights; (xi)
Theme Park Rights (subject to Section 4.15. below); (xii) all rights not
expressly granted to Distributor pursuant to this Agreement; and (xiii) in the
case of DTV Productions licensed hereunder, Theatrical Exhibition, which shall
not be exploited by DWA during the applicable License Term without Distributor's
prior written consent. Notwithstanding the foregoing, if the Distributor is
required to license or otherwise provide rights that would otherwise constitute
Retained Rights hereunder to a party to a DWA-approved Distribution Servicing
Agreement, then DWA shall license to Distributor such rights solely and to the
most limited extent required under such DWA-approved Distribution Servicing
Agreement.
Separation Agreement shall mean the agreement dated as of
____, 2004 by and among Distributor, DWA and DreamWorks Animation L.L.C.
regarding the principal corporate transactions required to effect DWA's
separation from Distributor.
Services Agreement shall mean the agreement dated as of
_______, 2004 between Distributor and DWA whereby (i) Distributor has agreed to
provide DWA with various corporate and administrative support services as
enumerated therein, and such additional services
15
<PAGE>
that Distributor and DWA may identify from time to time in the future, and (ii)
DWA has agreed to provide Distributor with certain support services as
enumerated therein.
Sound Records shall mean sound recordings and reproductions of
every kind and character, including all present and future developments of the
sound recording and motion picture industries, whether produced by means of any
electrical, electronic, mechanical or other process or device now known or
hereafter devised, and any accompanying process or device whereby sound may be
recorded for later transmission or playback, whether or not simultaneously or in
synchronization or timed relation with Licensed Pictures.
Soundtrack Recording Rights shall mean, with respect to each
Licensed Picture, the right to license, manufacture, distribute or sell (i)
Sound Records made from the soundtrack of such Licensed Picture or (ii) Sound
Records embodying re-recordings of score and/or musical compositions contained
on the soundtrack of the Licensed Picture and marketed to the public with the
works "contains music from" or "inspired by" with respect to such Licensed
Picture, or similar wording, which records are not the official soundtrack
recordings from the Licensed Picture. Soundtrack Recording Rights also includes
the right to select the record distributor that will release any soundtrack
albums derived from the Licensed Picture.
Subsequent Productions shall mean, with respect to each
Licensed Picture, any Motion Picture (i) based upon or derived from some portion
of the plot or story line from the Licensed Picture, or (ii) in which one or
more of the principal characters or elements appearing in the Motion Picture is
taken from the Licensed Picture, whether or not the Motion Picture depicts the
same or new and different events and situations as depicted in the Licensed
Picture, including any prequels, sequels and remakes of the Licensed Picture.
Subdistributor shall mean a Person, other than an Affiliate of
Distributor, licensed by Distributor to render services appropriate for the
distribution of one or more Licensed Pictures for a limited period of time in
territories, country, or media who, pursuant to such license from Distributor,
has an obligation to account to Distributor on a revenue and expenses basis with
respect to the Licensed Picture(s) (as opposed to accounting on a royalty or
similar basis). A Subdistributor for purposes only of this Agreement shall be
deemed to include (i) a sales agent (provided that such sales agent accounts for
revenue and expenses to Distributor in accordance with the foregoing) and (ii) a
fulfillment services provider, i.e., a Person, other than an Affiliate of
Distributor, licensed by Distributor, who has an obligation to account to
Distributor on a revenue and expenses basis with respect to Video Devices of one
or more Licensed Pictures and is responsible under Distributor's supervision for
services in the manufacturing, advertising, promotion, securing and fulfillment
of orders, the collection of revenue and the shipping of Video Devices of such
Picture(s).
Subsidiary shall mean, as to any Person, a corporation,
limited liability company, partnership or other entity of which shares of stock
or other ownership interests having ordinary voting power (other than stock or
such other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, limited liability company, partnership or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
16
<PAGE>
Tangible Film Materials shall mean, with respect to each
Licensed Picture (excluding property used exclusively in connection with the
exploitation of Retained Rights and any sets, costumes, props, scenery, vehicles
and equipment) and only to the extent it exists (whether coming into existence
before or after such Licensed Picture is Delivered) with respect to such
Licensed Picture, (i) all tangible physical embodiments of every kind or nature
of or relating to such Licensed Picture and all versions thereof, including the
YCM separations, master prints, exposed film, developed film, positives,
negatives, prints, answer prints, special effects, preprint materials (including
interpositives, negatives, videotapes, duplicate negatives, internegatives,
color reversals, intermediates, lavenders, fine grain master prints and
matrices, video masters and all other forms of preprint elements which may be
necessary or useful to produce prints or other copies or additional preprint
elements, whether now known of hereafter devised), sound tracks, recordings,
audio and video tapes and discs of all types and gauges, cutouts, timers,
credit-lists, music licenses, and any and all other physical properties of every
kind and nature relating to each such Licensed Picture in whatever state of
completion, and all duplicates, drafts, versions, variations and copies of each
thereof and (ii) to the extent related to or derived from the delivery,
exhibition, distribution or other exploitation of any Licensed Picture, all
documents of title, including any bill of lading, dock warrant or dock receipt,
all rights under any laboratory pledgeholder agreement, laboratory access
agreement, warehouse receipt or order for the delivery of inventory, and also
any other document or receipt which in the regular course of business or
financing is treated as adequately evidencing that the Person in possession of
it is entitled to receive, hold and dispose of the document and the goods it
covers.
Television Exhibition shall mean, with respect to each
Licensed Picture, all existing and future forms of television, regardless of the
delivery system or payment system (if any) involved, including all rights to
transmit, broadcast and Exhibit the Licensed Picture by means of free, toll, pay
and subscription television, Community Antenna Systems, Telstar-type, all other
forms of satellite and relay television, pay-per-view television, any and all
other kinds of open or closed circuit systems and electronic or digital delivery
systems, including all future methods and means of delivery analogous to the
transmission, retransmission, broadcast or exhibition of the Licensed Picture on
the screen of a television receiver, monitor or comparable devices now known or
hereafter devised. For avoidance of doubt, Television Exhibition shall not
include near-video-on-demand, subscription-video-on-demand, or video-on-demand,
all of which are included in Home Video Exhibition as more fully set forth
above, and shall not include any transmission or broadcast by open or closed
circuits to any theatre or other place where an admission fee is charged to view
the broadcast or transmission of the Licensed Picture.
Term shall mean the period commencing on the Effective Date
and continuing until expiration or earlier termination of the License Term of
all Licensed Pictures; provided, however, if the Effective Date does not occur
on or before December 31, 2005 this Agreement shall terminate without taking
effect.
Territory shall mean the entire universe.
(i) The "Domestic Territory" shall mean the territorial United
States and its possessions, territories and commonwealths, including the U.S.
Virgin Islands, Puerto Rico, Guam, and the U.S. Trust Territories of the Pacific
Islands, including the Carolina Islands, the Marshall Islands and the Mariana
Islands, Saipan and American Samoa; the Dominican
17
<PAGE>
Republic, the British Virgin Islands, Nassau, Bahamas, Bermuda, Saba Island, St.
Eustatius Island, St. Kitts Island, St. Maarten Island, and Freeport; the
Dominion of Canada and its possessions, territories and commonwealths; and all
Army, Navy, Air Force, Red Cross and other national or governmental
installations, diplomatic posts, camps, bases and reservations of the above
mentioned countries, as well as oil rigs (including Aramco sites) and maritime
facilities (and other commercial and/or industrial installations of the above
mentioned countries and territories), wherever any of the aforementioned
facilities or installations are located, to the extent that sales are made
and/or servicing thereof is performed within the geographical areas set forth
above, and all airlines and ships flying the flag of, or having the registry of,
or whose principal office is located in the United States, Canada or Bermuda and
other possessions, territories and commonwealths within the Domestic Territory.
(ii) The "International Territory" shall mean all geographical areas
outside of the Domestic Territory.
Theatrical Exhibition shall mean, with respect to each
Licensed Picture, all forms of theatrical distribution, including the right to
rent, lease, Exhibit, distribute or otherwise exploit the Licensed Picture and
any trailers thereof in commercial motion picture theatres and other venues
where persons view the Licensed Picture for an admission fee.
Theme Park Rights shall mean the right to use characters and
other elements from the Licensed Pictures in any theme park activities,
including theme, amusement, tour and/or similar tourist park attractions.
Third Party Service Agreement(s) shall mean any and all
agreements or arrangements between Distributor or an Affiliate of Distributor
and any Person, as a vendor or supplier of goods and/or services, such as an
overall laboratory agreement or advertising agency arrangement, that facilitate
the distribution or exploitation of Motion Pictures produced or distributed by
Distributor, as such agreements may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms hereof.
Trademark License Agreement shall mean the License Agreement
effective as of October 1, 2004 between DWA and Distributor with respect to the
DreamWorks Marks as specified therein.
Universal Agreement shall mean the DW/Universal Studios, Inc.
Master Agreement (Amended and Restated as of October 31, 2003), between
Distributor, Universal Studios, Inc. ("Universal") and Vivendi Universal
Entertainment LLLP, as assignee of Universal, including the Agreement Modules
(as defined therein) attached as Exhibits A, B and D thereto, but excluding the
Agreement Module attached as Exhibit C, as the same may be amended, restated,
supplemented or otherwise modified from time to time, in accordance with the
terms hereof.
1.2 Terms and Usage Generally.
The definitions in Section 1.1. as used herein shall apply equally to both
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. All references herein to Sections and
18
<PAGE>
Schedules shall be deemed to be references to Sections of, and Schedules to,
this Agreement unless the context shall otherwise require. All Schedules
attached hereto shall be deemed incorporated herein as if set forth in full
herein. The words "include", "includes" and "including" herein and in any
Exhibit and Schedule hereto shall be deemed to be followed by the phrase
"without limitation". All accounting terms not defined in this Agreement shall
have the meanings determined by United States generally accepted accounting
principles as in effect from time to time. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to a Person are also to its permitted successors and
permitted assigns. Unless otherwise expressly provided herein, any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein.
SECTION 2. GRANT OF RIGHTS; PERIOD OF DISTRIBUTION
2.1 Grant of Rights:
a. Subject to the terms and conditions hereof, DWA grants,
licenses, and assigns to Distributor, to the full extent of the rights owned or
controlled by DWA or any controlled Affiliate thereof in and to each Licensed
Picture, the sole and exclusive right and license under copyright, during the
License Term with respect to such Licensed Picture, throughout the Territory to
exploit the Distribution Rights, including all rights of Theatrical Exhibition,
Non-Theatrical Exhibition, Home Video Exhibition, Television Exhibition,
Internet Rights and New Media Rights. As between Distributor and DWA, all rights
not expressly granted to Distributor pursuant to this Agreement, including the
Retained Rights, shall remain vested in DWA.
b. The license herein granted with respect to each Prior
Picture and Qualified DTV Production released prior to the Effective Date shall
commence and vest in Distributor as of the Effective Date. The license herein
granted with respect to all other Licensed Pictures shall commence and vest in
Distributor upon the Delivery Date of each such Licensed Picture.
c. During the Output Term, DWA shall submit to Distributor for
possible license to Distributor, in accordance with Section 2.1.a above, all
Additional Pictures that DWA or any controlled Affiliate intends to produce or
acquire for distribution. DWA's submission to Distributor shall occur prior to
any sale, license or other alienation of any Distribution Rights to such
Additional Picture and shall include no less than the following with respect to
each Additional Picture: (i) a current script, storyboards, cast, production
plan and schedule; (ii) for acquired Additional Pictures, a print, other working
copy, or any available film footage if production has not been completed; (iii)
a description of the Distribution Rights to be owned or controlled by DWA or any
controlled Affiliate upon Delivery; (iv) estimated production budget or
acquisition cost; and (v) any other information reasonably requested by
Distributor (collectively, the "Submission Materials"). Within ten (10) Business
Days of DWA's
19
<PAGE>
provision of the Submission Materials to Distributor, Distributor shall prepare
and submit to DWA a preliminary good faith estimate of proposed initial
expenditures for prints and advertising ("P&A Spend") for the initial Theatrical
Exhibition of the Additional Picture in the Domestic Territory. If DWA
disapproves and no agreement can be reached between DWA and Distributor within
five (5) Business Days thereafter, DWA shall have the right to license the
Distribution Rights to such Additional Picture to third parties, subject to the
Changed Elements provisions set forth in Section 2.1.d. below and to DWA's
obligation to resubmit all rights initially offered to the Additional Picture to
Distributor if DWA is unable to obtain a binding P&A Spend commitment from a
third party distributor which is 110% or more than the P&A Spend proposed by
Distributor. If DWA approves the P&A Spend, Distributor shall have the right,
but not the obligation, within five (5) Business Days after DWA's approval of
the P&A Spend, to license all of the available Distribution Rights in and to
such Additional Picture by providing written notice to DWA of its intent to so
license. If Distributor provides such notice and elects to license the
Distribution Rights in and to the Additional Picture, then such Additional
Picture shall constitute an Accepted Additional Picture to the extent of the
Distribution Rights licensed to Distributor, and Distributor shall distribute
such Accepted Additional Picture in accordance with the terms and conditions of
this Agreement. If Distributor elects not to license all of the available
Distribution Rights in and to an Additional Picture then, subject to the Changed
Elements provisions set forth in Section 2.1.d. below, DWA shall be free to
license the Distribution Rights to such Additional Picture to third parties,
without further obligation to Distributor with respect to such Additional
Picture.
d. Notwithstanding Section 2.1.c. above, at any time prior to
DWA entering into a firm binding commitment with one or more third parties who
commit to acquire any of the Distribution Rights to any Additional Picture
rejected by Distributor, DWA shall have the continuing obligation to re-submit
such Additional Picture to Distributor for consideration if there is any
material change, deletion or addition to the Submission Materials ("Changed
Elements"). DWA shall promptly notify Distributor of any Changed Elements and
Distributor shall have the right, but not the obligation, by providing notice to
DWA given within ten (10) Business Days from receipt of notice from DWA, in
which to accept said re-submission and license all of the Distribution Rights
available at the time of the first submission of such Additional Picture to
Distributor hereunder. If the Distributor provides such notice and elects to
license such Distribution Rights, then the applicable Additional Picture shall
constitute an Accepted Additional Picture to the extent of the Distribution
Rights licensed to Distributor. DWA's obligation to notify Distributor with
respect to any Changed Elements for any Additional Picture and Distributor's
right to accept such re-submission under this Agreement shall be repeated each
time there are any Changed Elements to such Additional Picture prior to DWA
entering into a firm binding commitment with one or more third parties who
commit to acquire any of the Distribution Rights to such Additional Picture.
2.2 Period of Distribution: With respect to each Licensed Picture,
Distributor shall have the right and obligation to exploit the Distribution
Rights granted pursuant to Section 2.1 above during the applicable License Term.
20
<PAGE>
SECTION 3. DEVELOPMENT, PRODUCTION, ACQUISITION, PAYMENT OBLIGATIONS AND
DELIVERY
3.1 Development, Production and Acquisition; Payment Obligations:
a. As between DWA and Distributor, DWA shall be solely
responsible for the development, production or acquisition of the Licensed
Pictures, including the payment of all acquisition and productions costs, and
subject to the provisions of Section 6.2. below, DWA shall be solely responsible
for the cost of all Residuals and Contingent Compensation. DWA retains the
exclusive right in its sole discretion to make all decisions and to initiate any
action with respect to the development, production or acquisition of each
Licensed Picture, including (i) the right at any time in DWA's sole discretion
to abandon the development or production of each Licensed Picture, and (ii) the
right to control all creative matters, including the right to exercise final cut
or to delegate final cut to the director of any Licensed Picture.
b. Neither DWA nor any controlled Affiliate shall sell,
license or otherwise alienate any Distribution Rights in and to any Animated
Motion Picture, Hybrid Motion Picture or DTV Production (i) produced or acquired
by DWA or any controlled Affiliate, (ii) scheduled or available for Delivery
during the Output Term, and (iii) which (A) would otherwise fully satisfy all of
the specifications for a Qualified Picture or Qualified DTV Production (each a
"Prospective Qualified Picture") or (B) has been accepted by Distributor as an
Accepted Additional Picture; provided, however, notwithstanding the foregoing,
DWA shall have the right to dispose of its right, title and interest in and to
any Prospective Qualified Picture or an Accepted Additional Picture that has
been acquired by DWA after development thereof has been completed (e.g.,
completion of screenplay, storyboards and visual development), at any time prior
to the initial exploitation of the Distribution Rights so long as neither DWA
nor any controlled Affiliate retains any ownership rights therein, or retains
any financial interest in such Prospective Qualified Picture or such Accepted
Additional Picture. Without limiting the foregoing, DWA shall not sell, license
or otherwise alienate any Distribution Rights to any Prospective Qualified
Picture in order to obtain co-financing for the production or acquisition of a
Prospective Qualified Picture; provided, upon request from DWA specifying the
terms of any proposed co-financing arrangement, Distributor shall give good
faith consideration to permitting DWA to enter into such co-financing
arrangement, but Distributor's good faith business judgment not to permit such
co-financing arrangement shall be final and binding. DWA hereby waives, and
shall not assert, any claim against Distributor based upon any alleged failure
of Distributor to consider such request in good faith, or rejection by
Distributor of, DWA's request to enter into a co-financing arrangement. In no
event shall any sale, license or other alienation under this Section 3.1.b.
cause a Prospective Qualified Picture to fail to meet the Qualified Picture
specifications set forth in Section 3.2.b. below or the Qualified DTV Production
specifications set forth in Section 3.2.c. below. The foregoing provisions of
this Section 3.1.b. shall not affect, impair or otherwise limit the terms of any
agreements between DWA and Aardman Animations Ltd. in effect as of the Effective
Date. Subject to Section 11.2.c. below, under no circumstances shall DWA divest
itself of any Distribution Rights or other rights in and to a Prospective
Qualified Picture or any other Motion Picture hereunder to the extent such
divestiture would cause Distributor to be in violation of any DWA-approved
Distribution Servicing Agreement or DWA-approved Third Party Service Agreement.
21
<PAGE>
c. Notwithstanding the provisions of Section 3.1.b. hereof,
Distributor acknowledges and agrees that DWA or any controlled Affiliate shall
have the right in connection with any current or future financing arrangements,
including tax advantaged financing, so-called sale-leaseback transactions, or
off-balance sheet financing requirements to mortgage, pledge, grant or assign as
security, all or any portion of DWA's right, title and interests or the right,
title and interests of any controlled Affiliate of DWA in and to any Motion
Pictures hereunder for the benefit of its lenders and financiers, provided such
lenders and financiers execute customary nondisturbance agreements with respect
to the covered Distribution Rights in form and substance consistent with prior
nondisturbance agreements obtained by Distributor from lenders or financiers and
otherwise reasonably acceptable to Distributor.
3.2 Delivery Requirements:
a. Tangible Film Materials. Subject to Section 8.9. below, DWA
shall Deliver each Licensed Picture to Distributor at DWA's sole cost and
expense. All Tangible Film Materials set forth on Schedule 3-Delivery
Requirements shall be delivered to Distributor consistent with the past conduct
and practices of DWA and Distributor in delivering the Prior Pictures, provided
DWA shall deliver the requisite Tangible Film Materials in sufficient time to
enable Distributor to (i) make full and timely delivery of the Licensed Pictures
and elements thereof to third parties, (ii) satisfy the marketing and
distribution plan as approved pursuant to this Agreement, and (iii) meet all
Release Dates and HV Release Dates. Prior to Delivery of each Licensed Picture
and upon Distributor's timely notice of its proposed prerelease schedule for
advertising, publicity and promotional campaigns, DWA will provide Distributor
with any then-available Tangible Film Materials, as may be reasonably required
by Distributor, to enable Distributor to timely prepare customary advertising,
publicity and promotional materials (e.g., teasers, trailers, television spots,
electronic press kits, one-sheets and teaser print ads). Any so-called "bonus
materials" and "DVD Extras", which DWA in its sole discretion elects to make
available on Video Devices embodying the Licensed Pictures, shall be delivered
to Distributor at DWA's sole cost and expense. To the extent that any materials
required to be delivered to Distributor hereunder are held by a laboratory or
storage facility, DWA will deliver to Distributor a fully-executed access letter
for each Licensed Picture. To the extent that DWA itself maintains possession of
any Tangible Film Materials, Distributor shall have the same right of access
thereto as it would have under the above-referenced laboratory or
storage-facility access letter had such Tangible Film Material been held at a
laboratory or storage facility. Upon reasonable notice, DWA agrees to either
deliver to Distributor, or provide access to, such then-available Tangible Film
Materials sufficient to manufacture screening prints for marketing purposes.
Prior to completion of Delivery, DWA agrees to deliver to Distributor with
respect to each Licensed Picture hereunder a duly executed Instrument of
Transfer in substantially the form of Exhibit "A" hereto.
b. Qualified Picture Specifications: For a Motion Picture to
qualify as a Qualified Picture hereunder, such Motion Picture must fully satisfy
each of the following:
(i) General. Be in color (using 35mm film) and sound,
and in the English language;
22
<PAGE>
(ii) Running Time. Have a running time of not less than
75 minutes (including main and end titles) and not more than the maximum running
time, if any, specified in the DWA-approved Distribution Servicing Agreements;
(iii) Format / Production Value. Be an Animated Motion
Picture or a Hybrid Motion Picture of comparable production values and animation
quality on an overall basis as the Prior Pictures; provided, that if the
proposed Motion Picture is a Hybrid Motion Picture, then such Motion Picture
must be of comparable production values and animation quality as those Hybrid
Motion Pictures previously released by Distributor (e.g. Small Soldiers) or
previously released by senior management of DWA (e.g., Who Framed Roger Rabbit);
(iv) Rating. Qualify for a rating of "G", "PG" or
"PG-13" (or equivalent substitute rating) from the Rating Code Administrator of
the Motion Picture Association of America ("MPAA");
(v) Title. Have a title designated by DWA, subject only
to legal requirements and clearance by the Title Registration Bureau of the
MPAA;
(vi) Minimum Rights. The Distribution Rights owned or
controlled by DWA or any controlled Affiliate that will be licensed to
Distributor hereunder shall include, at a minimum, the following rights
(collectively, the "Minimum Rights"): Theatrical Exhibition, Home Video
Exhibition and Television Exhibition rights in the Domestic Territory or
Theatrical Exhibition, Home Video Exhibition and Television Exhibition rights in
not less than ten (10) of the Major International Territories (as identified on
and adjusted in accordance with Schedule 2);
(vii) Minimum License Term. The Minimum Rights will be
owned or controlled by DWA or any controlled Affiliate (and licensed to
Distributor hereunder) for a period of not less than the full contemplated
License Term for a "Qualified Picture", as set forth in Section 1.1. above (not
taking into consideration any early termination);
(viii) Theatrical Release. The Motion Picture, at the
time of its license to Distributor hereunder, is intended and available for
initial Theatrical Exhibition in the Territory;
(ix) No Universal Rejection. Universal has not refused
to provide fulfillment services in connection with the distribution of the
Motion Picture in the Domestic Territory or to distribute the Motion Picture in
a substantial portion of the International Territory pursuant to the terms of
the Universal Agreement; and
(x) Rent-a-System Picture. The Motion Picture is not a
Rent-a-System Picture.
Any disputes as to whether a Motion Picture satisfies each of the aforementioned
specifications shall be subject to the provisions of Section 24 below.
23
<PAGE>
c. Qualified DTV Productions Specifications: For a
Motion Picture to qualify as a Qualified DTV Production hereunder, such Motion
Picture must fully satisfy each of the following:
(i) General. Be in color and sound, and in
the English language;
(ii) Resolution. Have a resolution equal to
or greater than D-5 high definition and filmed with an aspect ratio of 16:9;
(iii) Running Time. Have a running time
between 70-75 minutes (including main and end titles);
(iv) Format/Production Value. Be an Animated
Motion Picture or a Hybrid Motion Picture of comparable production values and
animation quality on an overall basis as (A) Joseph: King of Dreams if the
Animation Method is hand-drawn animation, (B) "Father of the Pride" television
episodes if the Animation Method is computer generated animation, (C) "A Grand
Day Out", "The Wrong Trousers" and "A Close Shave" shorts produced by Aardman
Animations Limited if the Animation Method is stop-motion animation, and (D)
other equivalent first-class DTV Productions in the marketplace and released by
U.S. major motion picture studios if the Animation Method is any other form of
animation;
(v) Rating. Qualify or be capable of
qualifying for a rating of "G", "PG" or "PG-13" (or equivalent substitute
rating) from the Rating Code Administrator of the MPAA;
(vi) Title. Have a title designated by DWA,
subject only to legal requirements;
(vii) Minimum Rights. The Distribution
Rights owned or controlled by DWA or any controlled Affiliate that will be
licensed to Distributor hereunder shall include, at a minimum, Home Video
Exhibition in the Domestic Territory ("Minimum DTV Rights");
(viii) Minimum License Term. The Minimum DTV
Rights will be owned or controlled by DWA or any controlled Affiliate (and
licensed to Distributor hereunder) for a period of not less than the full
contemplated License Term for Qualified DTV Productions, as set forth in Section
1.1. above (not taking into consideration any early termination);
(ix) Home Video Release. The Motion Picture
at the time of its license to Distributor hereunder, is intended and available
for initial Home Video Exhibition in a portion of the Territory sufficient to
satisfy Minimum DTV Rights;
(x) No Universal Rejection. Universal has
not refused to provide fulfillment services in connection with the distribution
of the Motion Picture in the Domestic Territory or a substantial portion of the
International Territory pursuant to the terms of the Universal Agreement; and
24
<PAGE>
(xi) Rent-a-System Picture. The Motion
Picture is not a Rent-a-System Picture.
Any disputes as to whether a Motion Picture satisfies each of the aforementioned
specifications shall be subject to the provisions of Section 24. below.
SECTION 4. DISTRIBUTION
4.1 Obligation to Exploit: Distributor, during the applicable
License Term for each Licensed Picture, shall have the right and obligation to
advertise, publicize, promote, distribute and exploit each Licensed Picture and
the applicable Distribution Rights thereto in accordance with Distributor's past
practices used to service the distribution of comparable Prior Pictures, and to
the extent, and as long as, applicable and a higher standard, each Licensed
Picture shall be distributed consistent with Distributor's prevailing and
commercially reasonable practices as applied generally to Motion Pictures
produced or distributed by Distributor under similar circumstances in the
applicable territories and media, in each case taking into account differences
in production budgets, cast, genre, rating, prerelease audience surveys and test
results, theatrical box office and other performance metrics, local tastes and
other established factors that Distributor uses in good faith on a
nondiscriminatory basis to make determinations in connection with the
exploitation of Motion Pictures produced or distributed by Distributor,
excluding in each case, any Motion Pictures produced or directed by Steven
Spielberg. Distributor shall not have the right to decline to distribute a
Licensed Picture hereunder if such action would constitute a breach under any
DWA-approved Distribution Servicing Agreements, provided that Distributor shall
be obligated to timely notify DWA of its intention not to distribute a Licensed
Picture in a specific country in sufficient time to enable DWA to cause the
distribution of such Licensed Picture on the date contemplated for initial
release in the applicable country, or to promptly notify DWA following
Distributor's receipt of notice from a party to a DWA-approved Distribution
Servicing Agreement that such party does not intend to release such Licensed
Picture in the applicable country. Notwithstanding the foregoing: (x) solely
with respect to each Qualified Picture and any unexploited Distribution Rights
to each Prior Picture, Distributor shall provide DWA with a minimum level of
distribution support and services, including publicity, promotion, marketing and
advertising support and services, comparable on an overall basis in quality,
level, priority and quantity to the provision of distribution support and
services provided in connection with the exploitation of Distribution Rights to
the four (4) most recent Qualified Pictures (or until such time as there are
four [4] Qualified Pictures, a combination of the four [4] most recent Qualified
Pictures and Prior Pictures) initially released by Distributor for Theatrical
Exhibition), taking into account differences in production budgets, cast, genre,
rating, prerelease audience surveys and test results, theatrical box office and
other performance metrics, local tastes and other established factors that
Distributor uses in good faith on a nondiscriminatory basis to make
determinations in connection with the exploitation of Motion Pictures produced
or distributed by Distributor, excluding in each case, any Motion Pictures
produced or directed by Steven Spielberg; provided, Distribution Expenses shall
be determined in accordance with Section 5. below; and (y) solely with respect
to each Qualified DTV Production, Distributor shall provide DWA with a minimum
level of distribution support and services, including sales and marketing
expenditures, comparable on an overall basis to such distribution support and
services provided in connection with the Home Video Exhibition of DTV
Productions produced or distributed by Distributor and for which Distributor
projected (by
25
<PAGE>
using its then customary forecast methodology, including prospective retail
orders) gross shipments of Video Devices equivalent to or substantially
commensurate with projected gross shipments of Video Devices embodying the
Qualified DTV Production.
In furtherance of the foregoing, and expressly subject to the
applicable terms and conditions of the Universal Agreement in connection with
Theatrical Exhibition in the International Territory and Home Video Exhibition
in the Territory, Distributor shall:
a. Theatrical Distribution. In accordance with past
practices used to service the distribution of comparable Prior Pictures, timely
prepare for the Domestic Territory and for the Major International Territories
(as designated on Schedule 2) and such other countries as reasonably requested
by DWA, a country-by-country marketing and distribution plan and budget for each
Licensed Picture intended for initial Theatrical Exhibition, including proposed
exhibition dates. Each marketing and distribution plan and budget shall be
prepared in full consultation with DWA for DWA's approval; provided, however,
Distributor and DWA shall mutually determine Distribution Expenses and in the
event of disagreement regarding the budget and such Distribution Expenses,
Distributor's decision shall prevail, subject in the case of each Qualified
Picture to the requirements of Section 5. below. Distribution of each Licensed
Picture shall be in accordance with the approved marketing and distribution plan
and budget; it being acknowledged that such plans and budgets may require change
due to the performance of each Licensed Picture. All material changes in the
marketing and distribution plan and budget shall require DWA's approval;
provided, however, in the event of any disagreement regarding any such change in
the budget, Distributor's decision shall prevail subject to the requirements of
Section 5. below.
b. Home Video Distribution. In accordance with past
practices used to service the distribution of comparable Prior Pictures, timely
prepare and recommend, in full consultation with DWA, distribution and marketing
plans and budgets, product pricing and sales policies and all other elements of
Distributor's distribution obligations hereunder as requested from time to time
by DWA for DWA's approval; provided, however, Distributor and DWA shall mutually
determine Home Video Distribution Expenses and in the event of disagreement
regarding such Home Video Distribution Expenses, Distributor's decision shall
prevail, subject to the requirements of Section 5. below. Propose, and upon
DWA's timely approval, implement street date, pricing, period of availability
and applicable sales, credit, rebate, bonus and return policies on behalf of DWA
Video Devices. Recommendations shall be on a Licensed Picture-by-Licensed
Picture, country-by-country basis and shall be subject to DWA's timely approval.
Distributor shall procure, supervise and develop all artwork, ads, point of sale
and any other sales or promotional materials, implement the usage thereof
pursuant to the marketing plans approved by DWA, and update such materials from
time to time as reasonably directed by DWA. Distributor's failure to strictly
conform to the distribution and marketing plans and budgets shall not constitute
a breach of this Agreement by Distributor.
c. Information. Subject to the requirements of
applicable law, timely provide to DWA all pertinent materials and Information
with respect to the marketing and distribution of each Licensed Picture to
enable DWA to timely exercise its consultation and approval rights hereunder.
Such Information shall include:
26
<PAGE>
(i) All Information pertaining to the
Licensed Pictures to the extent such Information is available to Distributor,
and all Information pertaining to the Licensed Pictures to the extent similar
Information is available to Distributor with respect to Motion Pictures produced
or distributed by Distributor;
(ii) All Information pertaining to the
release of other Motion Pictures in the Territory to the extent such Information
is available to Distributor, provided such Information shall not be furnished to
DWA if in Distributor's good-faith business judgment, such disclosure would
constitute a violation of any third party right, a violation of any applicable
law, decree or government regulation, or an inappropriate business practice;
(iii) All Information as to Motion Pictures
produced or distributed by Distributor, to the extent similar Information is
available to Distributor with respect to the Licensed Pictures; provided such
Information (A) shall only be furnished upon written request from DWA; (B) shall
be restricted to Information required by DWA for a bona fide business purpose
under this Agreement (e.g. optimal release scheduling, verification of most
favorable terms as specified in this Agreement, including terms related to
services, pricing, costs, comparable accounts and collection of revenue
therefrom, etc.) and (C) shall not be furnished to DWA if in Distributor's
good-faith business judgment, such disclosure would constitute a violation of
any third party right, a violation of any applicable law, decree or government
regulation, or an inappropriate business practice;
(iv) All Information as to the Licensed
Pictures that is available to any Subdistributor from Distributor or all
Information that Distributor receives from any Subdistributor (subject always to
Section 4.1.c.(iii)(C));
(v) All other Information as may be
reasonably required by DWA (subject always to Section 4.1.c.(iii)(C)), including
trade association publications and reports (unless distribution to DWA is
prohibited by such trade association), access to all data for each Licensed
Picture on a country-by-country basis, daily box office reports, competitive
release dates, advertising expenses, copies of all outsourced market surveys,
updates and analysis, marketing reports (setting forth all marketing terms and
conditions relating to DWA Video Devices), sales reports (setting forth sales of
DWA Video Devices on a Licensed Picture-by-Licensed Picture, country-by-country
basis, specifying quantity, price, rental or sell-through, and retail account),
and expense reports (setting forth all expenses paid by Distributor comparing
budgeted and actual expenses on a Licensed Picture-by-Licensed Picture and
country-by-country basis), and legal reports or information (setting forth home
video security interests imposed on third parties or reports of audits and the
audit itself conducted directly or indirectly by Distributor, with respect to
which Distributor, upon DWA's request, shall include DWA Licensed Pictures or
Video Devices). The Information shall be provided to DWA consistent with the
frequency and timeliness with which the Information (or similar material) is
created by, or supplied to, Distributor or by Distributor to any Subdistributor,
or otherwise as DWA shall reasonably request. If any Information provided by
Distributor is insufficient or inadequate for DWA to exercise its approval
rights, then Distributor shall provide additional or revised Information to the
extent available, as DWA reasonably requests; and
27
<PAGE>
(vi) As used herein, "Information" shall
mean all tangible information, data, reports, agreements and other documents
whether distributed on paper, electronically and/or through other means.
(vii) Notwithstanding anything in this
Section 4.1.c. to the contrary, in no instance shall Information include (and
Distributor shall not be required to provide) (A) internal financial information
of Distributor not related to Licensed Pictures, or (B) Information that is not
related to the exploitation and performance of Motion Pictures or the costs of
distribution, or (C) Information that is withheld from Distributor or otherwise
not available to Distributor under DWA-approved Distribution Servicing
Agreements or DWA-approved Third Party Service Agreements, provided DWA shall
have the right (at DWA's expense) to cause Distributor to take such reasonable
action as DWA deems reasonably necessary to attempt to obtain such withheld
Information.
(viii) If Distributor is required to incur
any new additional direct-out-of-pocket costs or expenses (of which Distributor
notifies DWA in advance) solely in order to furnish any additional information
that heretofore was not provided by Distributor in connection with the
distribution of the Prior Pictures, or to furnish information more frequently or
expeditiously than such information is customarily supplied with respect to the
Licensed Pictures or Motion Pictures produced or distributed by Distributor,
Distributor shall not be required to furnish such information, or to furnish
such information more frequently or expeditiously, as applicable, unless DWA
preapproves such costs and expenses and agrees to reimburse Distributor therefor
(subject to appropriate reduction, to be mutually agreed, if and to the extent
Distributor uses such additional information, or increase in the frequency of
supplying such information, or the expediting of such information in connection
with the exploitation of other Motion Pictures produced or distributed by
Distributor).
4.2 Distribution Approvals and Controls: Notwithstanding
anything in this Agreement to the contrary, all DWA approvals and controls in
this Agreement with respect to Theatrical Exhibition in the International
Territory and Home Video Exhibition in the Territory are expressly subject to
the terms and conditions of the Universal Agreement. For the avoidance of doubt,
to the extent either (a) Distributor is not contractually entitled to exercise
certain approvals or controls over the activities of Universal; or (b) if, as a
matter of custom and practice and historical course of dealing, Distributor does
not exercise certain approval or controls to which it is contractually entitled
under the Universal Agreement, Distributor shall not be required to attempt to
amend the Universal Agreement to expand its contractual approval or control
rights to be consistent with those set forth herein, nor shall Distributor be
required to alter its custom and practice and historical course of dealing with
Universal under the Universal Agreement to comply with the approvals and
controls afforded to DWA hereunder. In either event, Distributor's only
obligation to DWA with respect thereto shall be to exercise its contractual
rights with respect to the Licensed Pictures in accordance with Distributor's
past practices used to service the distribution of comparable Prior Pictures,
and to the extent, and as long as, applicable in a manner consistent with the
exercise of such rights with respect to comparable Motion Pictures produced or
released by Distributor under similar circumstances in the applicable
territories.
28
<PAGE>
a. Release Date/Theatrical Exhibition: DWA shall have
the right to designate and approve the initial Theatrical Exhibition release
date ("Release Date") for each Qualified Picture in the Domestic Territory and
shall approve the Release Date for each Qualified Picture in each of the Major
International Territories (it being agreed that Release Dates already scheduled
by Distributor for any Qualified Pictures as of the Effective Date are
preapproved by DWA), provided, however, if not more than two (2) Qualified
Pictures are scheduled for initial Theatrical Exhibition in the Domestic
Territory within a calendar year, then DWA shall not schedule more than one
Release Date in the Domestic Territory during each of (i) the annual holiday
period (between November 1st and December 31st) and (ii) the summer period
(between May 15th and September 15th). If DWA schedules more than two (2)
Qualified Pictures for initial Theatrical Exhibition in the Domestic Territory
within a calendar year, the additional Release Date(s) shall be mutually
approved by Distributor and DWA taking into consideration the following periods,
which historically have generated optimal theater box office performance: (i)
spring; (ii) mid-May through May 31st; (iii) late June through early July; (iv)
early October; and (v) mid-November. DWA shall keep Distributor fully advised of
the anticipated Delivery Date of each Qualified Picture and shall provide
Distributor with not less than twelve (12) months prior notice of the designated
Release Date in the Domestic Territory. Release Dates are subject to
postponement and extension due to events of Force Majeure or DWA implemented
creative changes that delay Delivery of the Qualified Picture or otherwise
substantially and materially affect the orderly release schedule of the
Qualified Picture. In the event a Release Date is postponed due to an event of
Force Majeure or creative changes, DWA shall propose two (2) alternative Release
Dates that shall not cause Distributor to be in breach of the holdback
restrictions set forth in Section 4.2.c. below as they pertain to any theatrical
Motion Picture then scheduled for Theatrical Exhibition by Distributor.
Distributor shall have the option of selecting either Release Date and
scheduling the Picture for Theatrical Exhibition on such Release Date.
b. Release Dates/Home Video Exhibition: DWA shall
have the right to designate and approve the dates ("HV Release Dates") on which
Video Devices embodying the Qualified Pictures, Qualified DTV Productions and
any Prior Pictures that have not yet had their initial HV Release Dates are made
available for Home Video Exhibition in the Domestic Territory and shall approve
the HV Release Dates in each of the Major International Territories (it being
agreed that HV Release Dates already scheduled as of the Effective Date by
Distributor for any Qualified Pictures, Qualified DTV Productions or Prior
Pictures subject to this Section 4.2.b. are hereby preapproved by DWA). DWA
shall provide Distributor with not less than twelve (12) months notice of the
provisional HV Release Date in the Domestic Territory and in each of the Major
International Territories for each Qualified Picture, Qualified DTV Production
and Prior Picture subject to this Section 4.2.b. (or such shorter period if the
provisional HV Release Date is within twelve [12] months from the Effective
Date). Distributor shall be kept fully informed of any proposed or scheduled
change in any provisional HV Release Date and shall receive not less than four
(4) months notice of the designated HV Release Date in the Domestic Territory
and in each of the Major International Territories. HV Release Dates are subject
to postponement and extension due to Events of Force Majeure that delay the
production, manufacturing, duplication or replication of the applicable Video
Devices or otherwise substantially and materially affect any scheduled HV
Release Dates.
29
<PAGE>
c. Holdbacks: As additional consideration for the
Distribution Rights: (i) Distributor agrees not to commence or authorize the
commencement of the initial Theatrical Exhibition of any "Similar Theatrical
Motion Picture" in the Domestic Territory and in each of the Major International
Territories during the period one (1) week either side of the applicable Release
Date of each Qualified Picture in the Domestic Territory and in each of the
Major International Territories, respectively; and (ii) Distributor agrees not
to commence or authorize the commencement of the initial Home Video Exhibition
of any Similar Theatrical Motion Picture or "Similar DTV Production" in the
Domestic Territory and in each of the Major International Territories during the
"HV Release Week" in which the applicable HV Release Date occurs for each
Qualified Picture or each Qualified DTV Production in the Domestic Territory and
in each of the Major International Territories. HV Release Week with respect to
HV Release Dates shall mean the period Monday through Sunday, inclusive. Similar
Theatrical Motion Picture shall mean any theatrical Motion Picture rated "PG" or
a less restrictive rating. Similar DTV Production shall mean any DTV Production
that is rated (or is capable of obtaining a) "PG" or less restrictive rating.
One week either side of the applicable Release Date shall mean seven (7) days
before and seven (7) days after, without including the applicable Release Date
in the seven (7) day period, e.g., release on a Friday, May 28th would preclude
a release on Friday May 21st and Friday June 4th. DWA acknowledges that in
certain countries within the International Territory, such holdback restrictions
may be inappropriate or impracticable to enforce due to differences in ratings'
categories, or the contractual rights of third parties pursuant to DWA-approved
Distribution Servicing Agreements or DWA-approved Third Party Service
Agreements, or the inability of Distributor to enforce such holdbacks because of
established custom and practice and historical course of dealing under
DWA-approved Distribution Servicing Agreements or DWA-approved Third Party
Services Agreements, as applicable. In such event, Distributor shall keep DWA
fully informed of all proposed release dates for its Similar Theatrical Motion
Pictures and Similar DTV Productions, if applicable, to enable DWA to schedule
Release Dates and HV Release Dates for its Qualified Pictures and Qualified DTV
Productions in the International Territory. In addition, DWA further
acknowledges that the holdback restrictions applicable to the HV Release Date in
the Domestic Territory may be inappropriate or impracticable to enforce because
of the contractual rights of third parties pursuant to DWA-approved Distribution
Servicing Agreements or DWA-approved Third Party Service Agreements, as
applicable, or the inability of Distributor to enforce such holdbacks because of
established custom and practice and historical course of dealing under
DWA-approved Distribution Servicing Agreements or DWA-approved Third Party
Service Agreements, as applicable. In such event, Distributor shall keep DWA
fully informed of all proposed home video release dates for its Similar
Theatrical Motion Pictures and Similar DTV Productions, if applicable, to enable
DWA to schedule HV Release Dates for its Qualified Pictures and Qualified DTV
Productions in the Domestic Territory. Notwithstanding the foregoing, in the
event Distributor designates and notifies DWA in accordance with Section 34.
below as to a planned release date for the initial Theatrical Exhibition or
initial Home Video Exhibition, as applicable, of one of its Similar Theatrical
Motion Pictures or Similar DTV Productions in either the Domestic Territory or
the International Territory, as applicable, prior to DWA designating a Release
Date or HV Release Date, as applicable, for a Qualified Picture or Qualified DTV
Production in such territory(ies), (i) Distributor shall not be required to
change a previously designated release date(s) for its Similar Theatrical Motion
Picture or Similar DTV Production and the initial release by Distributor during
the above described holdback periods of
30
<PAGE>
any such Similar Theatrical Motion Picture or Similar DTV Production shall not
violate the provisions of this Section 4.2.c. and or otherwise constitute a
breach of this Agreement by Distributor; and (ii) DWA shall not schedule a
Release Date for a Qualified Picture on the "weekend" of such Release Date or
schedule a HV Release Date for a Qualified Picture or Qualified DTV Production,
as applicable, during the applicable HV Release Week. Weekend for purposes of
scheduling a Release Date shall mean the period Wednesday through Sunday,
inclusive, encompassing the Release Date.
d. No Editing: Except as set forth below and subject
to each DWA-approved Distribution Servicing Agreement and DWA-approved Third
Party Service Agreement, Distributor shall not have the right to cut, alter,
edit or change any Licensed Picture (or its title) for United States English
language Theatrical Exhibition (except in order to secure the required rating)
without the prior consent of DWA. Subject to any third party contractual
restrictions and applicable guild requirements, Distributor may alter or edit
each Licensed Picture and its title solely to the extent necessary to comply
with (i) import, censorship or legal requirements in each country or region in
the Territory, and (ii) further subject to DWA's prior approval in each case (a)
to comply with applicable distribution or exhibition requirements in each
country or region in the Territory, (b) to meet television or other exhibition
standards and practices or requirements, (c) to satisfy running time
requirements, including the insertion of commercial breaks, and (d) subject to
Section 8.9.d. below, to make foreign language dubbed or subtitled versions. DWA
shall have first opportunity to alter or edit each Licensed Picture and shall
exercise its approval rights hereunder in a manner not to frustrate the
exploitation of all Distribution Rights licensed to Distributor hereunder.
Nothing herein shall require Distributor or any Subdistributor to violate any
applicable law, or governmental regulation anywhere in the Territory. In no
event shall Distributor delete contractual credits or the Licensed Picture's
copyright notice.
e. Cuts/Previews: DWA shall have the right to preview
and screen each Licensed Picture and to cut, alter, edit or change each Licensed
Picture as DWA determines in its sole discretion. Upon reasonable prior written
notice, Distributor shall be obligated to obtain the theaters designated by DWA
for each preview and shall advance all actual, direct out-of-pocket costs,
charges and expenses incurred in connection with such previews. Distributor
shall be entitled to recoup such preview costs, charges and expenses as
Distribution Expenses. A reasonable number of Distributor's distribution and
marketing executives and personnel shall be entitled to attend each preview.
f. Theatrical Exhibition. For each Licensed Picture,
if and to the extent Theatrical Exhibition is licensed to Distributor hereunder,
DWA shall have the right to timely approve: the initial period of Theatrical
Exhibition of each Licensed Picture in each country in the Territory; any
re-release; the withdrawal or withholding of any Licensed Picture from
Theatrical Exhibition; marketing plans, distribution plans; the dates and terms
of initial bookings of the Licensed Pictures; any decision to create, and any
final version of, any altered versions of any Licensed Pictures; distribution
and release patterns; dubbing and subtitling; theaters and circuits, including
the selection and number of theaters and screens in the Domestic Territory and
the Major International Territories; suppliers, vendors and service providers;
laboratories; the placement of the Licensed Pictures in film festivals; and the
date, nature, number, location and guest list of all premieres and advanced
screenings.
31
<PAGE>
With respect to the Domestic Territory, DWA's approval rights shall include the
deal parameters to be established with exhibitors and circuits, such as minimum
engagement length, percentage splits, floors and minimums, number of prints,
screens and daily showings for multi-screen venues, auditorium selection, etc.
Thereafter, Distributor shall have the right to enter into exhibition booking
contracts with exhibitors on terms no less favorable to Distributor than the
DWA-approved deal parameters. DWA shall have the right to approve any
non-conforming exhibition booking contracts.
g. Home Video Exhibition. For each Licensed Picture,
if and to the extent Home Video Exhibition is licensed to Distributor hereunder,
DWA shall have the right to approve: distribution and marketing plans; product
pricing and sales policies; street date, period of availability and applicable
sales, credit, rebate, bonus and return policies; packaging; arrangement with
third party suppliers, such as laboratory, dubbing, duplication, manufacturing,
advertising, marketing, publicity and packaging arrangements, printers,
designers, production houses and related vendors and suppliers; and compression
and authoring. DWA shall be solely responsible for the creation, production and
timely delivery to Distributor of all bonus material.
h. Television Exhibition. For each Licensed Picture,
if and to the extent Television Exhibition is licensed to Distributor hereunder,
DWA shall have the right to approve: the terms of all licenses, including barter
arrangements, any advertising and/or promotional material extracting or
excerpting any portion of a Licensed Picture.
i. Multiple Pictures Agreements. DWA shall have the
right to approve any joint, multiple pictures or package sales or licenses that
include one or more Licensed Pictures. Distributor shall fully consult with DWA
prior to commencing negotiations for any such sales or licenses.
j. Outright Sales. No Outright Sale of any
Distribution Rights is permitted hereunder without DWA's prior consent.
k. Exercise of DWA Approvals: Notwithstanding
anything to the contrary contained in this Agreement, including this Section 4,
once DWA provides its approval over a certain matter (whether related to an
agreement, deal parameters, release methodology, release date, release pattern,
budget, edit, cut, preview, version, sales policy, supplier, marketing or
promotional campaign, or otherwise), Distributor shall have the right to fully
rely on such approval (unless prior to such reliance DWA notifies Distributor in
accordance with Section 34. below that such approval is withdrawn), and
Distributor shall not be deemed in breach of this Agreement for any act or
omission of Distributor (or any Affiliate, Subdistributor or licensee) that is
materially consistent with any approval provided by DWA.
4.3 Advertising and Credits: To the extent credits are used in
publicity and advertising under the control of Distributor in connection with a
Licensed Picture, Distributor agrees to accord credit to those Persons to which
DWA is contractually obligated to accord credit, in such form as DWA may direct
consistent with applicable guild and union requirements; provided, credits for
each Licensed Picture shall include all credits required pursuant to the
DWA-approved Distribution Servicing Agreements and DWA-approved Third Party
Service Agreements. Distributor agrees to honor and to use commercially
reasonable best efforts to
32
<PAGE>
cause to its Subdistributors and licensees to honor and comply with all such
contractual credit obligations. Subject to Section 19. below, Distributor shall
not alter the credits on the Licensed Pictures without DWA's prior written
approval.
4.4 Trailers and Publicity Materials: Distributor shall be
solely responsible for the creation and preparation of all theatrical and home
video trailers and television spots, and all other advertising, marketing,
publicity and promotional materials ("Marketing Materials") for the Licensed
Pictures. All basic Marketing Materials, including all key-art, creative
campaigns and content thereof, coop media plans and advertising, media buys,
ads, point of sale and any other sales and promotional materials, and all
communications to the press and press releases, shall be submitted to DWA for
its timely suggestions and approvals. Distributor shall not be liable for any
losses, claims or damages suffered by DWA as a direct result of DWA's failure to
timely provide such suggestions and approvals. Distributor agrees that DWA shall
have the right to access and use such Marketing Materials, without charge, for
such use as DWA may reasonably request in connection with its reporting to
investors, institutional publicity and similar matters and in connection with
exploitation of the Retained Rights; provided, that DWA shall reimburse
Distributor for the direct incremental costs of additional copies of such
Marketing Materials arising from such request that Distributor would not
otherwise have incurred. Distributor shall secure copyright in the name of DWA
and Distributor (or a Distributor Affiliate designated by Distributor) for
Marketing Materials prepared by Distributor and/or any Distributor Affiliate for
any Licensed Picture. DWA retains the exclusive right to produce and exploit
documentary films and other Motion Pictures relating to DWA or to the Licensed
Pictures, including "making of" and "behind the scenes" productions or
programming relating to the Licensed Pictures and to incorporate excerpts from
the Licensed Pictures therein. Notwithstanding the foregoing: (i) Distributor
may authorize the production of so-called "specials" or other similar
audio-visual productions as part of its promotional arrangements with media
companies (such as MTV International) provided, DWA shall have the right to
approve the content of such productions; and (ii) if any DWA-approved
Distribution Servicing Agreement or DWA-approved Third Party Service Agreement
requires Distributor to deliver and license any such productions to a third
party, DWA shall produce and deliver such productions to Distributor for
delivery and license pursuant to the terms of such DWA-approved Distribution
Servicing Agreement or DWA-approved Third Party Service Agreement. DWA shall
approve the use of trailers from the Licensed Pictures on other Motion Pictures
distributed by Distributor.
4.5 Marketing Restrictions: Without DWA's prior consent,
Distributor shall not engage in any cross-marketing, cross-promotion,
cross-merchandising, joint advertising, joint marketing, Commercial Tie-In and
Promotional Rights arrangements, product placement or joint distribution
activities (including with respect to home video incentive programs or home
video marketing programs) (collectively "Cross-Promotional Campaigns") in
connection with any element of a Licensed Picture and any other Motion Picture
or product owned or distributed by Distributor or by any third party.
Notwithstanding the foregoing, Distributor, its Subdistributors and licensees
shall have the right (i) to include the Licensed Pictures in Cross-Promotional
Campaigns consistent with prior distribution practices, e.g., marketing reels,
trade conventions and trade promotions such as those involving the Prior
Pictures, and (ii) to employ Cross-Promotional Campaigns solely in connection
with two (2) or more Licensed Pictures. In addition to the foregoing,
Distributor shall not use any elements or characters from the Licensed Pictures
for Distributor's corporate promotional purposes or to advertise or promote any
business
33
<PAGE>
or activity of the Distributor not directly related to the Licensed Pictures
without DWA's prior written approval.
4.6 Subdistribution:
a. Distributor may distribute the Licensed Pictures
either directly, through Distributor Affiliates or subject to DWA's prior
written approval (not to be unreasonably withheld) in each instance, through
Subdistributors and licensees; provided that Distributor agrees that it will not
engage a Subdistributor or licensee for the initial general theatrical release
of any Licensed Picture in the United States, except as provided in Section
17.(b) below. The Subdistributors and licensees listed on Schedule 1 are
preapproved by DWA. If, pursuant to a DWA-approved Distribution Servicing
Agreement, a Licensed Picture is not designated for distribution in any portion
of the Territory (e.g., is determined not to be financially viable for release
in a specific country), Distributor shall attempt in good faith to engage a
substitute Subdistributor or licensee to distribute the Licensed Picture in the
applicable portion of the Territory; provided, however, the terms of such
Distribution Servicing Agreement shall be subject to DWA's prior approval.
b. DWA shall have the right to approve the duration
and terms of any and all Subdistribution and license agreements entered into by
Distributor, whether with a Distributor Affiliate or any other Person. Subject
to Section 4.13. below, the CJ Agreement, the Kadokawa Agreement, the Universal
Agreement and the Distribution Servicing Agreements with Subdistributors and
licensees listed on Schedule 1 are preapproved by DWA.
c. For the avoidance of doubt, no breach by a
Subdistributor or licensee (or any successor to any Subdistributor or licensee)
of any DWA-approved Distribution Servicing Agreement shall constitute a breach
by Distributor of this Agreement; provided, however, DWA shall have the right to
take such action as set forth in Section 4.13 below with respect to such breach
by a Subdistributor or licensee.
4.7 Costs of Distribution: Except as expressly provided
herein, including Section 5.2 with respect to Additional Distribution Expenses
and Section 6.2 with respect to Residuals and Contingent Compensation,
Distributor shall be solely responsible for advancing all costs of advertising,
promoting, marketing and distributing the Licensed Pictures, including all
distribution fees paid to Subdistributors and all Distribution Expenses.
4.8 DWA Consultation Rights: Distributor shall fully consult
with and give due consideration to the reasonable requests of DWA concerning
advertising, marketing, publicity and distribution matters in connection with
each Licensed Picture. The foregoing consultation rights and conditions are in
addition to and do not derogate, impair, restrict or otherwise adversely affect
any of DWA's approvals and controls set forth in this Agreement. All
distribution and licensing arrangements with respect to the Licensed Pictures
shall be made in a manner consistent with Distributor's good faith business
practices as applied generally to comparable Motion Pictures produced or
distributed by Distributor under similar circumstances in the applicable
territories and media, taking into account differences in production budgets,
34
<PAGE>
cast, genre, rating, prerelease audience surveys and test results, theatrical
box office and other performance metrics, local tastes and other established
factors that Distributor uses in good faith on a nondiscriminatory basis to make
determinations in connection with the exploitation of Motion Pictures produced
or distributed by Distributor, excluding in each case, any Motion Pictures
directed by Steven Spielberg.
4.9 DWA Distribution Representative: DWA shall have the right
to appoint one or more individuals to serve as a distribution representative
(the "DWA Representative[s]") to: (i) monitor the marketing and distribution of
the Licensed Pictures and the expenditure of Distribution Expenses; (ii) access
and review Distributor's books and records relating to the marketing and
distribution of the Licensed Pictures; (iii) monitor Distributor's compliance
with DWA's approvals, consultation rights, designations and controls; (iv) meet
regularly with Distributor's marketing and distribution personnel; (v) attend
regularly scheduled marketing meetings related to the Licensed Pictures; and
(vi) engage in related activities. Distributor will provide DWA Representatives
with periodic briefings on marketing matters and upon request, shall provide DWA
Representatives with full and complete information relating to anticipated Gross
Receipts, marketing costs and budgets, expenditures of Distribution Expenses and
market research studies relating to the Licensed Pictures. Distributor shall
provide the DWA Representatives with suitable offices at Distributor's company
facilities without charge to DWA. DWA shall be solely responsible for the
salary, fringes and expenses of the DWA Representatives. DWA shall not appoint
more than five (5) individuals to concurrently serve as the DWA Representatives
without obtaining Distributor's prior consent.
4.10 Direct Access to Personnel. DWA and the DWA
Representatives shall have the right to access and to communicate directly with
(i) all of Distributor's officers, management staff and employees engaged in any
aspect of the marketing, distribution, licensing and exhibition of the Licensed
Pictures or exercise of the Distribution Rights anywhere in the Territory, and
(ii) to the same extent as Distributor and subject to the terms of each
applicable DWA-approved Distribution Servicing Agreement or DWA-approved Third
Party Service Agreement, as applicable, all officers, management staff and
employees of Subdistributors, licensees or third party service providers engaged
in any aspect of marketing, distribution, licensing and exhibition of the
Licensed Pictures or exercise of the Distribution Rights anywhere in the
Territory, including in each case any personnel or representatives based in
local, regional or international exchanges or offices in all regions of the
Domestic Territory and in each country in the International Territory
(collectively "Distribution Personnel"). Distributor shall endeavor to cause the
Distribution Personnel (x) to be available to consult with DWA and the DWA
Representatives at reasonable times for purposes of formulating, coordinating
and implementing the marketing, distribution, licensing, exhibition and other
exploitation plans and strategies pertaining to the Licensed Pictures, (y) to
cooperate fully with DWA and the DWA Representatives and (z) to provide DWA with
all Information available to such Distribution Personnel pursuant (and subject)
to Section 4.1.c. DWA will endeavor in good faith to keep Distributor fully
informed of, and involved in, all direct communications with Subdistributors,
licensees or third party service providers.
4.11 Vendor/Supplier Arrangements: Distributor shall have the
right and (to the extent entitled to do so pursuant to the applicable
third-Person contracts) obligation to cause the Licensed Pictures to be included
in any DWA-approved Third Party Service Agreement.
35
<PAGE>
DWA shall have the right of prior reasonable approval of the duration and terms
of each Third Party Service Agreement as they pertain to the Licensed Pictures.
The Third Party Service Agreements (and the duration and terms thereof) listed
on Schedule 5 are preapproved by DWA. Any amendment or modification of a
DWA-approved Third Party Service Agreement that materially affects one or more
Licensed Pictures, and any extension of a DWA-approved Third Party Service
Agreement that includes one or more Licensed Pictures shall require DWA's prior
written approval. Subject to the foregoing, the Licensed Pictures shall be
included in such DWA-approved Third Party Service Agreements on a
non-discriminatory basis as compared to comparable Motion Pictures produced or
distributed by Distributor under similar circumstances in the applicable
territories, excluding only Motion Pictures directed or produced by Steven
Spielberg. Any allocations between Distributor's Motion Pictures and the
Licensed Pictures shall be made in accordance with and pursuant to Section
8.5.c. below.
4.12 Distribution Arrangements: Subject to the terms and
conditions of the Universal Agreement (but only in connection with Theatrical
Exhibition in the International Territory and Home Video Exhibition in the
Territory), Distributor will use its commercially reasonable best efforts to
cause all business arrangements between Distributor and (i) exhibitors or
circuits, (ii) retailers, wholesalers or intermediary suppliers of Video
Devices, or (iii) television licensees, pertaining in whole or in part to the
Licensed Pictures to be no less favorable generally than the terms and
conditions applicable to Motion Pictures produced or distributed by Distributor,
which generate (or at the time such business relationship[s] were made, were
projected based on established forecast methodology to generate) comparable
theatrical box office revenue or otherwise produce comparable revenue under
similar circumstances in the applicable territories. All such business
arrangements shall be applied to the Licensed Pictures on a nondiscriminatory
basis. Motion Pictures directed or produced by Steven Spielberg are excluded
from the foregoing requirements, as are premiums, or other consideration
applicable to specific categories of Motion Pictures set forth in any
DWA-approved Distribution Servicing Agreements or DWA-approved Third Party
Service Agreements, as applicable. Distributor shall not be in breach of this
Agreement if it is unable to (x) obtain the number of theaters or screens
designated by DWA or obtain orders or other terms for the number of Video
Devices designated by DWA, or (y) obtain comparable terms for television
licenses pertaining to the Licensed Pictures, provided Distributor used its
commercially reasonable best efforts commensurate with its past conduct and
practices in distributing comparable Prior Pictures to obtain the foregoing
designated objectives in each case.
4.13 Distribution Servicing Agreement: Distributor shall have
the right to enter into Distribution Servicing Agreements and to include the
Licensed Pictures in any such arrangement; provided subject to Section 7.5.
below, DWA shall have the right of prior reasonable approval of the duration and
terms of each Distribution Servicing Agreement as it pertains to the Licensed
Pictures. DWA hereby approves the CJ Agreement, the Kadokawa Agreement, the
Universal Agreement and the Distribution Servicing Agreements listed on Schedule
1, including the duration and terms of each such Distribution Servicing
Agreement. Any amendment or modification of a DWA-approved Distribution
Servicing Agreement that materially affects one or more Licensed Pictures, and
any extension of a DWA-approved Distribution Servicing Agreement that includes
one or more Licensed Pictures shall require DWA's prior written approval.
Distributor shall not be responsible for any third party breach of a
DWA-approved Distribution Servicing Agreement; provided that any claims, losses
or causes
36
<PAGE>
of action (collectively "Claims") arising from such breach and related to a
Licensed Picture shall, subject to the terms of the applicable DWA-approved
Distribution Servicing Agreement, be assigned to DWA, or DWA shall have the
right (at DWA's expense) to cause Distributor to take such action as DWA deems
reasonably necessary to resolve such Claims. Distributor shall notify DWA of any
breach or alleged breach of any DWA-approved Distribution Servicing Agreement
and any bankruptcy filings of any party to a DWA-approved Distribution Servicing
Agreement, promptly following Distributor becoming aware of any such event. Any
recoveries (net of expenses) from the prosecution or settlement of any Claims
that would have been accounted for pursuant to the terms of a DWA-approved
Distribution Servicing Agreement shall be included in Gross Receipts, provided
no Distribution Fees shall be charged on any recoveries (e.g. punitive damages)
that would not otherwise constitute revenue derived from distribution of the
Licensed Pictures. In connection with each Licensed Picture and subject to the
terms of each DWA-approved Distribution Servicing Agreement, DWA and Distributor
shall jointly exercise any approval and consultation rights available to
Distributor under such DWA-approved Distribution Servicing Agreement; provided,
the foregoing shall not impair, restrict or derogate from the rights of
Distributor as set forth in this Agreement, including Distributor's right to
mutually approve (and its tie-breaker rights with respect to) Distribution
Expenses hereunder. In connection with each Licensed Picture and subject to the
terms of each DWA-approved Distribution Servicing Agreement; (i) in accordance
with Section 4.10 above, DWA shall have the right to communicate directly with,
and have full access to, all officers, appropriate management employees, staff
and personnel engaged in any aspect of distribution as provided to Distributor
under each DWA-approved Distribution Servicing Agreement; (ii) DWA shall receive
in a timely fashion all distribution information and other materials pertaining
in whole or in part to the Licensed Pictures that are received by Distributor
from Subdistributors and other parties to the DWA-approved Distribution
Servicing Agreements; and (iii) Distributor, in the exercise of its good faith
business discretion, shall use commercially reasonable best efforts to audit the
accountings or financial records provided or available under each DWA-approved
Distribution Servicing Agreement and the reasonable out-of-pocket audit costs
shall be charged as Distribution Expenses hereunder; provided, in the event such
audit involves one or more Licensed Pictures and other Motion Pictures produced
or distributed by Distributor, DWA shall only bear its proportionate share of
the costs thereof. Distributor shall have the right to appropriately redact from
any information provided to DWA under this Agreement (including under this
Section 4.13) information relating to any Motion Pictures other than the
Licensed Pictures. The foregoing does not limit Distributor's obligation to
issue Payment Reports, Interim Reports or make payments to DWA, as more fully
set forth in Section 8.6. DWA shall cooperate with Distributor and, at
Distributor's request and expense, shall take such actions that are reasonably
necessary or desirable to ensure that Distributor is able to perform its
obligations relating to the Licensed Pictures under the DWA-approved
Distribution Servicing Agreements and the DWA-approved Third Party Service
Agreements.
4.14 Exploitation of Commercial Tie-In and Promotional Rights:
DWA retains the right to exploit Commercial Tie-In and Promotional Rights in
connection with each Licensed Picture; provided, that in furtherance of
Distributor's exploitation of the Distribution Rights, DWA shall undertake
commercially reasonable efforts in full consultation with Distributor to
consummate Commercial Tie-In and Promotional Rights arrangements for each
Licensed Picture. In addition to the foregoing, DWA shall undertake to
consummate Commercial Tie-In and Promotional Rights arrangements for each
Qualified Picture that on an overall basis shall be
37
<PAGE>
consistent with the marketing and promotion of the four (4) most recent
Qualified Pictures (or until such time as there are four [4] Qualified Pictures,
a combination of the four [4] most recent Qualified Pictures and Prior
Pictures). Notwithstanding DWA's retention of Commercial Tie-In and Promotional
Rights, DWA acknowledges that in connection with Theatrical Exhibition in the
International Territory and Home Video Exhibition, Distributor, its
Subdistributors and licensees shall have the right to negotiate and consummate
Commercial Tie-In and Promotional Rights arrangements for each Licensed Picture
on a country-by-country or regional basis, provided that Distributor, its
Subdistributors and licensees shall be obligated to obtain DWA's prior written
approval of any such Commercial Tie-In and Promotional Rights arrangements,
which approval shall not be unreasonably withheld. Distributor shall endeavor in
good faith, and commensurate with its past conduct and practices in distributing
comparable Prior Pictures, to cause such arrangements to be on an overall basis
comparable to the marketing and promotion of the four (4) most recent Prior
Pictures and in each case, subject to the prior Commercial Tie-In and
Promotional Rights arrangements consummated by DWA in connection with the
applicable Licensed Picture. Any amounts received by Distributor pursuant to
arrangements entered into by Distributor in connection with such Commercial
Tie-In and Promotional Rights arrangements shall be deemed Gross Receipts.
4.15 Exploitation of Theme Park Rights: Notwithstanding DWA's
retention of Theme Park Rights hereunder, DWA acknowledges and confirms that as
and to the extent DWA owns or controls Theme Park Rights to Licensed Pictures,
such rights are subject to the terms and conditions of Exhibit D to the
Universal Agreement. DWA consents to the terms and conditions of Exhibit D to
the Universal Agreement insofar as they pertain to the Licensed Pictures,
provided that (i) Distributor's exercise of all rights, approvals and controls
pertaining to the Licensed Pictures and granted to or retained by Distributor
pursuant to the terms of said Exhibit D shall be subject to DWA's prior approval
(not to be unreasonably withheld) and (ii) the financial and other benefits
derived by Distributor thereunder from exploitation of Theme Park Rights to any
Licensed Picture shall inure to the account of DWA as provided herein.
Commencing on the Effective Date, any exclusivity fee or other form(s) of
advance payments not directly related to an Eligible DW Property (as defined in
Exhibit D to the Universal Agreement), or any element thereof, shall be prorated
(for any year including the Effective Date), and thereafter apportioned and
payable as follows: (i) 10% thereof to each of Distributor and DWA as
consideration for the exclusive rights granted pursuant to said Exhibit D; (ii)
the remaining 80% to Distributor and DWA, as applicable, calculated for each
year of the term of said Exhibit D in proportion to the total annual additional
fees earned and attributable to Eligible DW Properties of Distributor and
Eligible DW Properties of DWA. For the avoidance of doubt, no amounts paid or
payable to Distributor or DWA pursuant to this Section 4.15 shall constitute
Gross Receipts.
4.16 MPAA Rating: Distributor shall be responsible for
obtaining the MPAA rating certificate, if applicable, for each Licensed Picture
and MPAA title clearances on DWA's behalf in connection with each Licensed
Picture. DWA shall cooperate with and assist Distributor in obtaining the MPAA
rating certificate and clearing the title for each Licensed Picture. Such
cooperation and assistance shall be at DWA's sole cost and expense.
SECTION 5. DISTRIBUTION EXPENSES -- APPROVALS AND CONTROLS
38
<PAGE>
5.1 Expenditure Commitment: Distributor and DWA shall mutually
determine the amount of Distribution Expenses to be incurred with respect to (i)
the initial Theatrical Exhibition of each Licensed Picture in the Domestic
Territory and in each of the Major International Territories, including all
print and trailer costs, advertising campaign creation costs, media buys,
including remainder media buys, and (ii) the initial Home Video Exhibition of
each Licensed Picture in the Domestic Territory and in each of the Major
International Territories; provided that in the event of disagreement,
Distributor's decisions shall prevail. Notwithstanding the foregoing, unless
otherwise agreed between Distributor and DWA, the aggregate amount of
Distribution Expenses to be incurred by Distributor to release each Qualified
Picture hereunder throughout the Territory for initial Theatrical Exhibition and
initial Home Video Exhibition shall not be less than eighty percent (80%) of the
average amount of Distribution Expenses incurred by Distributor to release the
four (4) most recent Qualified Pictures (or until such time as there are four
[4] Qualified Pictures, a combination of the four [4] most recent Qualified
Pictures and Prior Pictures) throughout the Territory for initial Theatrical
Exhibition and initial Home Video Exhibition (such amounts, "Minimum
Distribution Expenses"); provided, however, that the Minimum Distribution
Expenses may be adjusted by Distributor on a Qualified Picture-by-Qualified
Picture basis taking into consideration (i) the Domestic Territory and
International Territory box office performance of the two (2) most recent
Qualified Pictures (or until such time as there are two [2] Qualified Pictures,
a combination of the two [2] most recent Qualified Pictures and Prior Pictures)
released by Distributor, (ii) the Distribution Rights available for exploitation
and the portion of the Territory for which such Distribution Rights have been
obtained (i.e., Minimum Distribution Expenses shall be reduced to the extent
Distributor has not obtained all Distribution Rights from which Gross Receipts
are derived in the entire Territory), (iii) minimum release requirements set
forth in applicable DWA-approved Distribution Servicing Agreements, (iv) the
prerelease forecast for the applicable Qualified Picture, (v) post release
performance of the Qualified Picture, (vi) Distributor's projections for gross
shipments of Video Devices embodying the Qualified Picture and (vii)
Distributor's good faith business judgment based on empirical projections and
established forecast methodology that Gross Receipts will be less than the
cumulative Distribution Fee and Distribution Expenses for the applicable
Qualified Picture. The aggregate amount of Distribution Expenses to be incurred
by Distributor to release each Qualified DTV Production throughout the Territory
shall be determined in accordance with Section 4.1. above.
5.2 DWA Distribution Expenses: In the event DWA determines in
its good faith business judgment that Gross Receipts of a Licensed Picture will
be materially enhanced by expending additional Distribution Expenses in excess
of the amount determined pursuant to Section 5.1., then DWA may cause
Distributor to expend such additional Distribution Expenses ("Additional
Distribution Expenses"), provided that DWA shall be solely responsible for all
Additional Distribution Expenses and shall pay to Distributor all Additional
Distribution Expenses in advance of Distributor incurring such Additional
Distribution Expenses. If DWA does not promptly advance such amounts,
Distributor shall have the right, but not the obligation, to incur such
Additional Distribution Expenses, and DWA shall reimburse Distributor for such
Additional Distribution Expenses within five (5) Business Days after receipt of
Distributor's invoice therefor. If such amount remains unpaid ten (10) Business
Days after DWA's receipt of Distributor's invoice therefor and notwithstanding
any prohibition against cross-collateralization or offset contained in this
Agreement, upon prior notice to DWA, Distributor shall have the right
39
<PAGE>
(without limiting any of it other rights hereunder, at law or in equity) to
offset such amounts, including interest thereon, against any amounts otherwise
due to DWA hereunder.
5.3 Standard of Compliance: Notwithstanding anything to the
contrary contained in Section 4, Section 5 or elsewhere in this Agreement, it is
understood and agreed that Distributor shall not be in breach or default hereof
with respect to compliance with approved marketing and distribution plans and
budgets as long as Distributor substantially complies with the DWA approved
marketing and distribution plans and budgets. For purposes of example and
without limitation, it is understood and agreed that because of the difficulty
in stopping the amount of Distribution Expenses expended at a specific level,
Distributor shall not be in default or otherwise in breach hereof if the amount
of Distribution Expenses actually expended by Distributor does not conform to or
exceeds the budget therefor and all such Distribution Expenses shall be fully
recoupable by Distributor out of applicable Gross Receipts.
5.4 Subdistributor Distribution Expenses: For purposes of this
Section 5., Distribution Expenses shall include all costs, charges and expenses
of distribution (excluding distribution fees) charged to, and undisputed by,
Distributor in its accountings with Subdistributors with respect to the
applicable Licensed Picture(s).
SECTION 6. DISTRIBUTION EXPENSES ACCOUNTING
6.1 Calculation of Distribution Expenses: Distribution
Expenses shall be deducted on a Licensed Picture-by-Licensed Picture basis by
Distributor from Gross Receipts and shall be calculated after taking into
account the following items to the extent they are directly attributable to the
Licensed Pictures: all discounts, rebates and refunds actually received that
serve to reduce the amount of Distribution Expenses. For the avoidance of doubt,
Distribution Expenses shall be reduced by any tax credits, refunds or rebates
received or utilized by, or credited to, Distributor directly attributable to
the Licensed Pictures, such as rebates for any remittance or withholding taxes.
No item of cost shall be included more than once in calculating Distribution
Expenses. Distribution Expenses incurred in respect of Licensed Pictures which
are exhibited and/or licensed with trailers or short subjects and which are
subject to allocations of revenue pursuant to Section 8.5.c. shall be allocated
in the same manner as revenue thereunder where appropriate. Distribution costs,
charges and expenses accrued and paid by Distributor prior to the Effective Date
shall not be recognized or charged as Distribution Expenses hereunder.
Distribution costs, charges and expenses accrued but not paid by Distributor
until on or after the Effective Date shall be recognized and charged as
Distribution Expenses hereunder.
6.2 Payment of Residuals and Contingent Compensation:
a. Residuals: As an accommodation to DWA on a
Licensed Picture-by-Licensed Picture basis, Distributor will advance all
Residuals arising from the exploitation of the Distribution Rights, and provided
DWA timely supplies Distributor with all necessary information, Distributor will
calculate all Residuals, act as paymaster on behalf of DWA and will advance all
Residuals arising from DWA's exploitation of the Retained Rights. Prior to the
date Residuals are due, Distributor will timely invoice DWA for all amounts then
due and owing, and DWA shall have not less than ten (10) Business Days after
receipt of Distributor's invoice to
40
<PAGE>
advance such amounts to Distributor. If DWA fails to timely advance Residuals to
Distributor, then notwithstanding any prohibition against
cross-collateralization or offset contained in this Agreement, Distributor shall
have the right (without limiting any of it other rights hereunder, at law or in
equity) upon payment of outstanding Residuals to offset such amounts, including
interest thereon, against any amounts due to DWA hereunder. Distributor shall
execute customary assumption agreements with respect to the licensed
Distribution Rights if required pursuant to any collective bargaining agreements
applicable to the Licensed Pictures.
b. Contingent Compensation: As an accommodation to
DWA on a Licensed Picture-by-Licensed Picture basis, and provided DWA timely
supplies Distributor with all necessary information, Distributor shall prepare
consolidated Contingent Compensation statements in accordance with third party
agreements (provided DWA has timely provided such agreements and other necessary
information to Distributor) and shall deliver such statements to DWA for its
review and approval. DWA shall be solely responsible for issuing the approved
Contingent Compensation statements to third parties and for paying all
Contingent Compensation amounts due and owning to such third parties.
c. No Distributor Liability: Distributor shall have
no liability for any claims, losses, etc., to the extent caused by DWA's failure
to timely deliver information or to approve consolidated Contingent Compensation
statements (as referenced above) or otherwise related to Distributor's
accommodations to DWA under this Section 6.2. For avoidance of doubt, DWA's
indemnity obligations to Distributor (as more fully set forth in Section 10)
shall apply to any third-party claim against Distributor arising out of
Distributor acting as Residual paymaster or preparing consolidated Contingent
Compensation statements pursuant to this Section 6.2., unless such claim is
determined to have arisen from the gross negligence or intentional misconduct or
omission of Distributor, or Distributor's failure to timely advance Residuals
when due in accordance with Section 6.2.a above.
SECTION 7. DISTRIBUTION FEES
7.1 Distribution Fees: As consideration for the distribution
services and obligations of Distributor hereunder in respect of the Licensed
Pictures, Distributor shall be entitled to retain on a Licensed
Picture-by-Licensed Picture basis off-the-top distribution fees ("Distribution
Fees") of an amount equal to eight percent (8%) of one hundred percent (100%) of
the Gross Receipts (as defined in Section 8. below); provided, with respect to
Gross Receipts received from Subdistributors and in lieu of calculating the
foregoing Distribution Fees on such Gross Receipts, Distributor shall retain
Distribution Fees in an amount equal to eight percent (8%) of one hundred
percent (100%) of the Subdistributor's gross revenue reported to, and undisputed
by, Distributor in such Subdistributor's accountings to Distributor. Similarly,
if fees or commissions of sales agents are deducted from Gross Receipts, such
amounts shall be added back (without duplication of amounts added back pursuant
to Section 8.1.h. below) to Gross Receipts for the purpose of calculating the
amount of Distribution Fees to be retained by Distributor hereunder. For
avoidance of doubt, the Distribution Fees retained by Distributor shall be
inclusive of any and all (x) distribution fees that are charged to, and
undisputed by, Distributor in its accountings with any Subdistributor and (y)
any fees or commissions retained by or payable to any sales agent, and the fees
and commissions in clauses (x) and (y) herein shall be subject to Section 8.1.h.
below.
41
<PAGE>
7.2 Calculation of Distribution Fee: No Distribution Fees
shall be payable to Distributor until concurrent payment to DWA of the Gross
Receipts, if any, upon which such Distribution Fees are charged. In the event of
any adjustment as provided in Section 8. below, the Distribution Fees shall be
similarly recalculated and adjusted.
7.3 No Cross-Collateralization: The Gross Receipts,
Distribution Fees and Distribution Expenses relating to each Licensed Picture
shall not be cross-collateralized or offset against the Gross Receipts,
Distribution Fees and Distribution Expenses relating to any other Licensed
Picture.
7.4 Additional Distribution Fees: In the event (i) DWA is in
default pursuant to the terms of this Agreement, (ii) such DWA default causes
Distributor to be in default pursuant to the terms of any DWA-approved
Distribution Servicing Agreement, and (iii) as a result of such default there is
an increase in the distribution fees paid to or deducted by a Subdistributor,
sales agent or licensee under the applicable DWA-approved Distribution Servicing
Agreement, then Distributor also shall be entitled to retain from Gross Receipts
the amount of additional distribution fees paid to the Subdistributor.
7.5 Substitution of DWA- approved Distribution Servicing
Agreements: In the event the Distribution Rights to one or more Licensed
Pictures are not exploited pursuant to a DWA-approved Distribution Servicing
Agreement governing the exploitation of such Distribution Rights, and such
failure to exploit is not the result of Distributor's breach or default under
the terms of the applicable DWA-approved Distribution Servicing Agreement,
Distributor shall have the right (and obligation) in accordance with the terms
of this Agreement to attempt in good faith to enter into a substitute
Distribution Servicing Agreement with respect to the applicable Distribution
Rights for such Licensed Picture(s). DWA shall have the right to approve the
substitute or replacement Subdistributor or licensee, and any terms of the
substitute Distribution Servicing Agreement that do not conform to prevailing
industry standards shall be subject to DWA's reasonable approval. Any substitute
Distribution Servicing Agreement entered into by Distributor in accordance with
this Section 7.5. shall constitute a DWA-approved Distribution Servicing
Agreement.
SECTION 8. GROSS RECEIPTS
8.1 Gross Receipts: Gross Receipts consist of:
a. Theatrical Exhibition: All amounts received by
Distributor or any Distributor Affiliate from any Person, including
Subdistributors, for the right to exhibit or distribute the Licensed Pictures
(including returnable and non-returnable advances) or as subsidies, prizes or
aid, and all receipts directly from the distribution of the Licensed Pictures in
the case of so called "four wall engagements and/or road shows".
b. Non-Theatrical Exhibition: All amounts (including
returnable and non-returnable advances) received by Distributor or any
Distributor Affiliate from any Person, including Subdistributors, for the right
to distribute, exhibit or license the exhibition of the Licensed Pictures in
Non-Theatrical venues.
42
<PAGE>
c. Home Video Exhibition: All amounts received by
Distributor or any Distributor Affiliate from any Person, including a
Subdistributor, in connection with Home Video Exhibition of the Licensed
Pictures, including advances, minimum guarantees and other remittances or
credits.
d. Television Exhibition: (i) All amounts, including
advances, signing bonuses and security deposits, received by Distributor or any
Distributor Affiliate from any Person, including a Subdistributor, in connection
with the business of licensing one or more Licensed Pictures for Television
Exhibition less refunds, credits, allowances and adjustments granted to Persons
licensed to exhibit such Licensed Picture(s); and (ii) barter receipts from the
direct sale of commercial time controlled by Distributor or a Distributor
Affiliate less (a) advertising agency commissions payable and (b) refunds,
credits, allowances, or adjustments (including "make goods") granted in
connection with the sale of such commercial time.
e. Copyright Revenue: All amounts constituting
Copyright Revenue received by Distributor or any Distributor Affiliate from any
Person, including any Subdistributor, in connection with the exercise of the
Distribution Rights and the Licensed Marks in and to the Licensed Pictures,
excluding only Copyright Revenue derived from the Retained Rights.
f. Recoveries: All amounts received by Distributor
from any Person with respect to claims or infringement of rights involving the
Licensed Pictures, including copyright infringement, trademark infringement,
piracy, misappropriation, unfair competition and similar claims brought by
Distributor, a Distributor Affiliate or any Person pursuant to a DWA-approved
Distribution Servicing Agreement, less all permitted costs and expenses.
g. All Other Sources: All amounts received by
Distributor or any Distributor Affiliate from any Person derived from the
exploitation of any Distribution Rights not enumerated above, including Internet
Rights, New Media Rights and Theme Park Rights (subject to Section 4.15. above)
and all other sources not specifically excluded pursuant to Section 8.2.
h. Addback of Subdistributor Fees, Sales Agent Fees
and Commissions: Distribution Fees that are charged to, and undisputed by,
Distributor in its accountings with any Subdistributors and the fees or
commissions retained by or payable to any sales agents shall be deemed Gross
Receipts hereunder and notwithstanding retention by, or payment to, the
Subdistributor or sales agent, such distribution fees of Subdistributors and
such fees or commissions of sales agents shall constitute Gross Receipts for all
purposes hereunder. In no event shall any such distribution fees payable to or
retained by a Subdistributor or any such fees or commissions retained by or
payable to any sales agent reduce or otherwise be deducted from Gross Receipts
hereunder.
i. Deemed Receipts: Amounts received by the
Distributor shall be deemed to include any amounts that Distributor does not
receive in respect of exploitation of the Licensed Pictures from
Subdistributors, sales agents or licensees as the result of the deduction of any
amounts referred to in Section 8.1.h. above or to pay Distribution Expenses or
any deductions, offsets or reductions not related to the exploitation of the
Licensed Pictures.
43
<PAGE>
j. Gross Receipts Adjustments:
(i) Distributor shall give DWA prompt
written notice of all adjustments (e.g. bad debt) or other changes in any
receivables on the books and records of Distributor or any Distributor Affiliate
that affect Gross Receipts hereunder. DWA shall have the right to approve all
adjustments, settlements, rebates, credits, allowances or refunds granted by
Distributor to any Person, which reduce Gross Receipts.
(ii) Notwithstanding the foregoing, in the
event that (A) the amount of cumulative Gross Receipts reported and paid to DWA
with respect to a Licensed Picture is determined by Distributor to be overstated
for any reason (e.g., returns of Video Devices, refund of advances or security
deposits previously included in Gross Receipts) and (B) Distributor is either
required to repay or refund such overstated Gross Receipts or an amount equal to
such overstated Gross Receipts is deducted from any amounts otherwise payable to
Distributor by a third party, DWA shall be solely responsible for reimbursing
Distributor for such overstated Gross Receipts. Distributor shall have the right
to deduct the amount of such overstated Gross Receipts from any amounts
otherwise due to DWA hereunder. If Gross Receipts otherwise due and payable to
DWA in the accounting period in which such overstated Gross Receipts are
refunded or repaid by, or deducted from, Distributor are insufficient to recoup
the full amount of such overstated Gross Receipts, then DWA shall promptly repay
Distributor for any such unrecouped amounts (less the amount of any Distribution
Fees previously deducted by Distributor thereon) within five (5) Business Days
after receipt of Distributor's invoice therefor.
8.2 Exclusions: Notwithstanding anything herein to the
contrary, the following shall be excluded from Gross Receipts:
(i) Amounts collected as taxes or for
payment of taxes such as admission, sales, use or value added taxes;
(ii) Receipts from Retained Rights; and
(iii) Amounts collected or received by
Distributor prior to the Effective Date.
8.3 Short Subjects: It is understood and agreed that, except
as set forth below, all revenue derived from the exploitation of trailers or
short subjects exhibited and/or licensed with any Licensed Picture, and all
proceeds therefrom paid to Distributor, any Distributor Affiliate or
Subdistributor obligated to report such proceeds to Distributor, shall be
included in Gross Receipts of such Licensed Pictures. No portion of revenue from
any Licensed Picture licensed and/or exhibited with a trailer or short subject
shall be deemed to be derived from any trailer or short subject with a running
time of 15 minutes or less, except where inclusion of such a trailer or short
subject is made necessary by Distributor's, any Distributor Affiliate's or any
Subdistributor's obligation to supply a supporting program for minimum playing
time. In the case of any trailer or short subject not excluded by the preceding
sentence, the allocation of revenue therefrom shall be made in accordance with
and subject to the provisions of Section 8.5.c. below. For the avoidance of
doubt, any costs or expenses incurred by Distributor
44
<PAGE>
in connection with the exploitation of trailers or short subjects accompanying
Licensed Pictures shall be deemed Distribution Expenses.
8.4 Reserves:
a. Except as otherwise expressly provided in Section
8.4.b. below, no reserves of any kind may be established by Distributor in
connection with Gross Receipts, Distribution Fees, Distribution Expenses,
Residuals and Contingent Compensation or for any other reason.
b. Beginning in the last six (6) months of the
License Term for each Licensed Picture, Distributor shall have the right to
establish reasonable reserves for Distribution Expenses reasonably anticipated
to be incurred by Distributor during the remainder of the applicable License
Term and for a reasonable period thereafter, including costs reasonably
anticipated to be incurred in connection with the transition and return of
materials to DWA (each an "End of Term Reserve"). All such End of Term Reserves
shall be liquidated and paid pursuant to the Final Accounting Statement in
accordance with Section 8.6.d. below, together with accrued interest on such
amount, if any, of End of Term Reserves paid to DWA, computed from inception of
the End of Term Reserve at the rate specified in Section 8.6.e. below.
8.5 Finance/Audits:
a. Advances/Rebates: Distributor shall disclose to
DWA and include in Gross Receipts all Financial Benefit accorded Distributor by
any Person, which results from or is related to Distributor's services in
connection with the Licensed Pictures or the exploitation of the Distribution
Rights hereunder, whether or not specifically allocated to the Licensed
Pictures, including any amounts received for or in connection with the
distribution of Motion Pictures, including the Licensed Pictures, which are not
specifically allocated or credited to the distribution of specific Licensed
Pictures consistent with this Agreement, provided, however, Distributor shall
not be obligated to disclose any Financial Benefit from transactions that do not
involve any Licensed Picture(s) hereunder. All such Financial Benefit will be
allocated to the Licensed Pictures on a fair and reasonable basis, and in
Distributor's good faith business judgment taking into account, if applicable,
one or more factors such as, among others, box office performance, cast, and
genre. All allocations shall be made on a nondiscriminatory basis as to the
Licensed Pictures, and Distributor shall not change any current allocation
methodology without obtaining DWA's prior consent. DWA acknowledges and confirms
its agreement to all allocations on the books and records of Distributor as of
the Effective Date or set forth in the DWA-approved Distribution Servicing
Agreements and DWA-approved Third Party Service Agreements. DWA shall have full
access to any agreement that provides for any such Financial Benefit, subject to
the confidentiality restrictions contained in any such agreement.
b. Local Currency: Other than amounts which cannot
legally be remitted from the country in which they are earned ("Blocked
Currency"), all amounts payable hereunder shall be paid in the same manner as
Distributor receives revenue from Motion Pictures produced or distributed by
Distributor, in either U.S. currency or the currency of the country where such
Gross Receipts are received by Distributor. Foreign currency amounts received by
Distributor and subsequently paid to DWA in U.S. currency shall be converted,
using the same
45
<PAGE>
exchange rate for Distribution Expenses and Gross Receipts, on specified dates
of which Distributor shall notify DWA on an ongoing basis and which shall be the
same dates and rates used for Motion Pictures produced or distributed by
Distributor; provided, if amounts are not converted directly from the foreign
currency in which they were received to U.S. currency (e.g., if intermediary
conversion to any other currency[ies] is utilized), then Distributor shall bear
all risk from fluctuation of such intermediary currencies unless such
intermediary conversion was undertaken at DWA's direction. Notwithstanding the
foregoing, DWA shall have absolute approval over any currency hedging contracts
applicable to the Licensed Pictures entered into by Distributor or any
Subdistributor, and DWA shall have the right to enter into foreign currency
hedging contracts with respect to amounts due hereunder. In the case of Blocked
Currency, DWA shall have the right to elect from time to time whether to receive
some or all of the Blocked Currency, as it becomes payable hereunder, in the
country where it is located or to make any other arrangements with respect to
some or all of the Blocked Currency as are available to Distributor in the
applicable country. To facilitate DWA's management of Blocked Currency,
Distributor shall specify on each "Payment Report" (as defined below) all Gross
Receipts that are in Blocked Currency; and upon written instructions from DWA
(subject to any and all limitations, restrictions, laws, rules and regulations
affecting such transaction), Distributor shall deposit Blocked Currency into a
bank designated by DWA in the applicable country, or pay Blocked Currency to any
Person designated by DWA in such country. Such deposits or payments to or for
DWA shall constitute due remittance to DWA, and Distributor shall have no
further responsibility therefor. At DWA's election, Distributor shall convert
Blocked Currency into U.S. dollars to the same extent and in the same manner and
proportion that Distributor is permitted to convert Blocked Currency derived
from Motion Pictures produced or distributed by Distributor. Solely for purposes
of this Section 8.5.b., Licensed Pictures shall not constitute Motion Pictures
produced or distributed by Distributor.
c. Allocations:
(i) Without DWA's prior written approval, Distributor
shall not license a Licensed Picture in a group with other Motion Pictures for
Television Exhibition. If Distributor proposes to include one or more Licensed
Pictures in a group with other Motion Pictures for Television Exhibition and DWA
objects to the terms applicable to the Licensed Picture(s), then notwithstanding
DWA's objection, Distributor shall have the right to consummate such
transaction, provided DWA may elect to exclude the Licensed Picture(s)
therefrom. Whenever Distributor makes an allocation of revenue hereunder with
respect to one or more Licensed Pictures and/or other Motion Pictures, DTV
Productions, television programs, trailers or short subjects, Distributor shall
make such allocation in its good faith business judgment and shall take into
account one or more factors such as, among others, box office performance, cast,
prior television allocation and genre, and in the case of a revenue allocation
to trailers and/or short subjects as set forth in Section 8.3 above, Distributor
shall make such allocation taking into account such factors as, among others,
cost and running time.
(ii) All allocations of revenue and expenses shall be
made on a nondiscriminatory basis as to the Licensed Pictures, and Distributor
shall not change any current allocation methodology without obtaining DWA's
prior consent. DWA acknowledges and confirms its agreement to all allocations on
the books and records of Distributor as of the Effective Date or set forth in
the DWA-approved Distribution Servicing Agreements.
46
<PAGE>
d. Bonuses:
(i) "Bonus Plan" means the payment of any
bonuses, compensation or consideration of any kind (including discretionary
bonuses) based upon, tied or related in any fashion, in whole or in part,
directly or indirectly, to revenue generation in connection with the
distribution of Motion Pictures.
(ii) "Bonus Plan Participants" means (i)
Distributor's staff and other employees, and (ii) any other persons or entities
rendering services on or in connection with the distribution of Motion Pictures
in general produced or distributed by Distributor, which persons and entities
are eligible to participate in the Bonus Plan.
(iii) To the extent Distributor institutes,
maintains or participates in a Bonus Plan, such Bonus Plan shall be designed and
implemented so as not to have an unfair or harmfully discriminatory impact on
the Licensed Pictures, as compared to Motion Pictures produced or distributed by
Distributor. Payments made pursuant to any Distributor Bonus Plan to any
employees of Distributor shall not constitute Distribution Expenses hereunder
and shall be the sole responsibility of Distributor.
e. Electronic Reporting: All revenue and expenses on
a per Licensed Picture basis shall be reported electronically, and DWA shall
have full access to all data pertaining to or generated in connection with the
Licensed Pictures, including all raw data (i.e. data not processed or reduced)
whether segregated as to the Licensed Pictures or generated in connection with
data pertaining to other Motion Pictures. As soon as practicable after the
Effective Date, Distributor shall make available to DWA access to such
Information and data as is required to be provided to DWA pursuant to this
Agreement, including access to daily reports, if any, regarding box office and
weekly reports relating to box office receipts and projected ultimate
performance.
f. Withholding and Corporate Taxes: Distributor
shall be entitled to charge withholding taxes and deduct withholding taxes as a
Distribution Expense, provided, however, in the event Distributor actually
receives a rebate of or reimbursement for any such withholding taxes,
Distributor shall be obligated to credit such amount to Distribution Expenses in
the calendar month received. DWA shall not be responsible for, and Distributor
shall indemnify DWA from, any corporate-level tax or other tax liability which
may arise from Distributor's distribution of Licensed Pictures in the Territory
(other than DWA's own income tax liabilities).
g. Distributor Owned Businesses: With respect to the
distribution of Licensed Pictures pursuant to this Agreement, any agreement with
any theater or theater chain, or any supplier or other business or entity owned
in whole or in part, directly or indirectly, by Distributor, or any Distributor
Affiliate, shall be fair and reasonable in the marketplace and on an arms-length
basis. All such agreements shall be subject to the accounting, access and audit
rights provisions set forth in Sections 8.6 and 8.7 below.
47
<PAGE>
8.6 Accountings:
a. On a cumulative and continuous basis, with respect
to each Licensed Picture, Distributor shall first deduct and retain Distribution
Fees from Gross Receipts, as provided in Section 7, and thereafter recoup
Distribution Expenses from Gross Receipts, as provided in Section 6. Distributor
shall pay any remaining Gross Receipts to DWA on a monthly basis no later than
the date due and issuance of the applicable Payment Report (as defined below).
Distributor shall furnish to DWA, on a monthly basis, within 30 days from the
end of each calendar month, revenue and payment detail reports (the "Payment
Reports") in a format approved by DWA, which format may change from time to time
in DWA's good faith discretion. Gross Receipts, Distribution Fees, Distribution
Expenses and all other revenue and payment detail shall be reported on an
inception-to-date basis, including all prior inceptions to date information to
support current Payment Reports. Payment Reports shall be dated as of the
"Report Closing Date". Report Closing Date means the end of the calendar month
prior to the date the Payment Report is due to DWA. The Payment Reports shall,
among other things, indicate with specificity on a country-by-country basis (to
the extent available from Subdistributors) all Gross Receipts received by
Distributor for each Licensed Picture, all Distribution Fees retained from Gross
Receipts, all Distribution Expenses paid for each Licensed Picture and the
remaining Gross Receipts due and payable to DWA. Gross Receipts, Distribution
Fees and Distribution Expenses shall be stated in U.S. Dollars. Each Licensed
Picture shall be separately accounted for hereunder, and the Gross Receipts,
Distribution Fees and Distribution Expenses relating to each Licensed Picture
shall not be cross-collateralized or applied against the Gross Receipts,
Distribution Fees and Distribution Expenses relating to any other Licensed
Picture hereunder. Gross Receipts, Distribution Fees and Distribution Expenses
relating to any Subdistribution shall be designated separately. Payment Reports
may be corrected, adjusted or supplemented by Distributor from time to time to
reflect adjustments, uncollectible amounts and errors.
b. In addition to the Payment Reports, Distributor
shall furnish to DWA, on a monthly basis, within three (3) Business Days from
the end of each calendar month, revenue reports sufficiently detailed including
all pertinent Information pertaining to Distribution Fees and Distribution
Expenses to enable DWA to record Picture revenue on an accrual basis in
accordance with GAAP. Such accrual based revenue reports shall include all
pertinent Information from the DWA-approved Distribution Servicing Agreements
received by Distributor through the second Business Day of the month, but in no
event shall Distributor be required to include in such accrual based revenue
reports Information that is not available to Distributor under the DWA-approved
Distribution Servicing Agreements.
c. Concurrently with DWA's receipt of each Payment
Report, Distributor will pay to DWA in immediately available funds the amount
indicated thereon to be due to DWA. Gross Receipts received by Distributor or
any Distributor Affiliate from a Subdistributor and received at any time
preceding the last three (3) Business Days of each calendar month shall be
accounted for on an interim basis (each an "Interim Report"). Distributor shall
issue each Interim Report within three (3) Business Days after receipt of the
applicable Gross Receipts from a Subdistributor, and shall concurrently with
each Interim Report pay to DWA amounts, if any, then due after reconciliation of
such Interim Report with the last Payment Report issued to DWA.
48
<PAGE>
d. Within one-hundred eighty (180) days following the
expiration or termination of the License Term for a given Licensed Picture,
Distributor will prepare and render to DWA a report (the "Final Payment Report")
for such Licensed Picture setting forth, in the same form and level of detail as
the periodic Payment Reports provided by Distributor over the course of the
License Term for such Licensed Picture, the following information: (i) the
cumulative final Gross Receipts, Distribution Fees and Distribution Expenses for
such Licensed Picture, (ii) the amount of any unliquidated End of Term Reserve
for such Licensed Picture; and (iii) the net amount payable by Distributor to
DWA (or DWA to Distributor, if applicable) (the "Final Payment Amount"). If the
Final Payment Amount is payable by Distributor to DWA, Distributor shall make
payment of such amount to DWA at the time the Final Payment Report is rendered.
If the Final Payment Amount is payable by DWA to Distributor, DWA shall make
payment of such amount within ten (10) Business Days following delivery of the
Final Payment Report.
e. All payments hereunder to DWA or Distributor, as
the case may be, shall be made by wire transfer or such other method as DWA or
Distributor, as the case may be, shall approve. Payments to DWA shall be to DWA
or any entity designated from time to time by DWA. Interest shall be charged on
any amount which is not paid when due (from the date due until the date of
payment) hereunder by either party at the 30-day LIBOR from time to time in
effect, plus 100 basis points but shall be waived if payment of the amount owing
is made within five (5) Business Days after the due date. Such interest shall be
paid at the same time as the associated principal payment shall be made.
f. DWA shall be entitled to all audit results
respecting the Licensed Pictures as and when received by Distributor, including
original audit reports and supporting materials. Distributor shall audit the
Pictures on not less than the same basis and frequency as it audits Motion
Pictures produced or distributed by Distributor, as performed by internal and
external auditors.
g. If Distributor is required to incur any new
additional direct out-of-pocket costs or expenses (of which Distributor notifies
DWA in advance) solely in order to re-format any Payment Reports to DWA's
specifications, Distributor shall not be required to furnish such re-formatted
Payment Reports unless DWA preapproves such costs and expenses and agrees to
reimburse Distributor for all such costs and expenses (subject to appropriate
reduction, to be mutually agreed, if and to the extent the revised format is
used for similar reports provided to any Person other than DWA).
8.7 Access and Audit Rights:
a. Distributor shall keep full, true and complete
records and books of accounts together with all supporting vouchers, invoices,
books of account, computer or data base information, correspondence and
documents relating to the distribution of the Licensed Pictures hereunder
(collectively, "Records"), and maintain, for a period of seven years following
DWA's receipt of a Payment Report all Records relevant thereto. Notwithstanding
the foregoing, Distributor shall in any event keep and maintain (or deliver to
DWA) all of the above mentioned materials for any longer period required to
complete an open audit for which DWA
49
<PAGE>
gives notice or in the event of an unresolved dispute with any participant or
third party related to a Licensed Picture for which DWA gives notice.
b. Distributor grants DWA and its agents, employees
and representatives the right, from time to time at all times during the Term
and for a period of thirty-six (36) months after the later of (i) the expiration
of the Term and (ii) the delivery of the last Payment Report hereunder, upon
reasonable prior notice to Distributor, to examine, audit and take excerpts from
and make copies of any such Records and all other documents related to the
distribution of the Licensed Pictures or to the calculation of amounts due to or
from DWA hereunder; provided, however, transactions will not be subject to audit
more than five (5) years after delivery to DWA of the Payment Report in which
such transactions are initially reported. Notwithstanding the foregoing, DWA
shall only be entitled to confidential third party information to the extent the
same is reasonably necessary to resolve an issue(s) under audit. DWA's audit
rights hereunder shall include the right to examine and inspect (a) Records
pertaining to theatrical Motion Pictures and DTV Productions produced or
distributed by Distributor in order for DWA to verify the fair and reasonable
allocation of any Financial Benefit to the Licensed Pictures, and (b) all
inventory of the Licensed Pictures in the possession or control of Distributor
and any Subdistributors and/or the duplication, printing and storage facilities
used by Distributor. DWA shall have the right (a) to conduct any audit at
Distributor's corporate headquarters and/or at Distributor's branch offices, and
(b) to obtain supporting documentation through Distributor's corporate
headquarters' staff and/or Distributor's branch offices. DWA shall be solely
responsible for all costs and expenses in connection with such audits, except as
further provided in Section 8.7.c. below.
c. If an audit discloses any inaccuracies or
discrepancies in the Records with respect to the distribution of the Licensed
Pictures hereunder or the amounts payable to or from DWA (and either Distributor
agrees with the audit findings or the findings are confirmed by the arbitrator
pursuant to Section 24 below), then Distributor shall cure such inaccuracies and
discrepancies within thirty (30) calendar days following notice thereof. In the
event an audit shall uncover a deficiency (and either Distributor agrees with
the audit findings or the findings are confirmed by the arbitrator pursuant to
Section 24 below),as of the end of the period audited, or for any period of at
least six (6) months during the period audited, in each case equal to or greater
than five percent (5%) of the net amount paid to DWA for the period audited,
Distributor shall immediately pay DWA (i) said deficiency in full, together with
interest thereon, with interest computed at the 30-day LIBOR plus 100 basis
points as of the applicable Payment Report date, computed from the date such
amounts were otherwise due and (ii) all costs and expenses in connection with
such audit, including auditor fees, hotel and travel expenses.
d. Subject in all cases to Distributor's
confidentiality obligations, DWA shall have the right at DWA's sole expense, to
elect (i) to require Distributor to audit, to the extent of Distributor's right
to conduct such audit, or (ii) to audit directly, where Distributor may grant
such right and to the extent of Distributor's right to conduct such audit, the
records of any Subdistributor or party to a DWA-approved Distribution Servicing
Agreement or DWA-approved Third Party Service Agreement pertaining to the
Licensed Pictures, provided that such right may not be assigned to any other
Person.
50
<PAGE>
e. In the event of an audit, Distributor shall
provide DWA and its agents, employees and representatives with reasonable and
suitable physical conditions in which to conduct such audit, including a desk
and chair, telephone, adequate lighting and suitable ventilation, as well as a
copying machine with which to make copies. Subject to the applicable
DWA-approved Distribution Servicing Agreement or DWA-approved Third Party
Service Agreement, Distributor shall cause each Subdistributor or party to a
DWA-approved Distribution Servicing Agreement or DWA-approved Third Party
Service Agreement to comply with the foregoing.
f. Each of Distributor, any Subdistributor or party
to a DWA-approved Distribution Servicing Agreement or DWA-approved Third Party
Service Agreement and DWA shall use reasonable efforts to conduct any audit in
an expeditious manner. DWA and Distributor shall mutually agree on an audit
schedule pertaining to the Licensed Pictures. Any audit settlement including the
Licensed Pictures shall be subject to DWA's prior written approval.
8.8 Tax Reporting:
a. General: Distributor shall supply DWA with such
information and/or documentation available to Distributor as DWA may require in
order to take advantage of any tax credits, deductions, exclusions and/or
reductions, including the Extra-territorial Income Exclusion ("EIE") that may be
available to DWA in any jurisdiction of the Territory. Distributor shall have no
liability hereunder to DWA with respect to or arising out of such information
and/or documentation or DWA's ability or inability to take advantage of any such
tax credits, deductions, exclusions and/or reductions, and DWA's indemnification
of Distributor and related parties set forth in Section 10 below shall apply to
any third party claims by reason of any such tax credits, deductions, exclusions
and/or reductions.
b. Records: Distributor shall maintain and provide
DWA with access to any books and records necessary to prepare any federal, state
and foreign, if any, tax filings.
c. Tax Filings: Distributor shall be responsible for
any foreign tax filings, such as withholding tax, VAT, etc., and shall indemnify
and hold DWA harmless from any interest, penalties or similar assessments
resulting from errors and/or failures to file any required tax returns.
d. Other Tax Information: To the extent such
information is in Distributor's possession or is available to Distributor, and
provided that Distributor is not prohibited from providing such information to
DWA by law, regulation or contract, Distributor will provide DWA with such
additional information as DWA any request with respect to tax matters, including
information required to take advantage of tax credits and related matters. Such
information will be provided to DWA within five (5) Business Days following
DWA's request therefor.
e. Tax Information/Additional Costs: If DWA requires
any information and/or documentation pursuant to this Section 8.8 that is not
reasonably available to Distributor, Distributor shall not be required to supply
such information and/or documentation
51
<PAGE>
unless DWA agrees to reimburse Distributor for any additional direct
out-of-pocket costs preapproved by DWA and incurred by Distributor to supply
such information and/or documentation.
8.9 Operations:
a. Secured Locations: Distributor shall maintain all
prints and transfers of the Licensed Pictures, all other related Tangible Film
Materials and all intellectual property of DWA under Distributor's control in a
secure location at all times during the Term. At all times hereunder, as between
DWA and Distributor, DWA shall retain sole and exclusive ownership of the
copyrights and all other intellectual property rights in and to the Licensed
Pictures and all Tangible Film Materials, provided Distributor shall own the
physical items constituting Tangible Film Materials created by Distributor in
accordance with this Agreement. Tangible Film Materials shall be held in
Distributor's name for the benefit of DWA at each secured location and
laboratory, and DWA shall have unfettered and unrestricted access to any
Tangible Film Materials wherever located, including the right to access such
Tangible Film Materials and any Marketing Materials created or produced by
Distributor to exploit DWA's Retained Rights.
b. Prints/Video Devices: Distributor shall catalog
and track (in a manner acceptable to DWA) all prints, Video Devices, trailers
and other advertising material and implement with DWA's approval print storage
and retrieval procedures and procedures for the destruction of prints and Video
Devices and for issuance of a certificate of destruction evidencing same.
c. Laboratories: DWA shall comply with Distributor's
existing film and laboratory agreements with Eastman Kodak Company and
Technicolor Inc. and Affiliates, respectively. The Licensed Pictures shall be
included in the foregoing agreements on a nondiscriminatory basis. Such
agreements constitute DWA-approved Third Party Service Agreements and, as such,
are subject to the provisions of Section 4.11. above.
d. Dubbing/Subtitling: DWA shall determine in its
sole discretion which Licensed Pictures, if any, shall be subtitled and/or
dubbed and shall approve the key creative elements (e.g., cast and star talent
approvals, translations of the English language version) of dubbing and
subtitling the Licensed Pictures and trailers thereof. Distributor shall manage,
implement and service all dubbing and/or subtitling, including the negotiation
and execution of all talent agreements.
e. Documentation: To the extent Tangible Film
Materials, Marketing Materials or any versions of the Licensed Pictures are in
the possession of any Person, Distributor shall provide DWA with any written
authorizations, access letters and permissions required to allow DWA to fully
access such materials.
f. Security/Anti-Piracy Measures: Except as may be
provided in the Universal Agreement (but only in connection with Theatrical
Exhibition in the International Territory and Home Video Exhibition in the
Territory), Distributor shall maintain (and shall use commercially reasonable
efforts to cause or obligate its Subdistributors to maintain) security and
anti-piracy measures consistent with the highest level of security and
52
<PAGE>
anti-piracy measures maintained for theatrical Motion Pictures and DTV
Productions distributed by Distributor in the applicable portions of the
Territory to prevent unauthorized distribution or copying, or infringement of
any of DWA's rights. If DWA desires security and anti-piracy measures beyond
those provided by Distributor (or its Subdistributors) per the preceding
sentence, it may require Distributor to provide same (or DWA may make its own
third party arrangements for such services) at DWA's sole cost and expense. Each
party shall immediately notify the other of any unauthorized copying,
distribution, exhibition or other exploitation of the Licensed Pictures and of
any of the infringements or violations of DWA's copyrights, trademarks and other
rights in the Licensed Pictures of which such party has knowledge. DWA shall
take such actions as it deems appropriate with respect thereto. To the extent
appropriate, Distributor may join in any actions and cooperate (at DWA's
expense) in any litigation or other proceedings to protect the Licensed Pictures
and to prevent unauthorized distribution or copying, or infringement of any of
DWA's rights. If DWA elects to proceed alone directly through its own counsel,
DWA shall bear the costs thereof, and DWA shall be entitled to retain any
recovery. If DWA does not elect to proceed as provided in the preceding
sentence, Distributor shall have the right, but not the obligation, to proceed
either in DWA's name or in Distributor's name, in which event all recovery
reasonably allocated to the Licensed Pictures shall be included in Gross
Receipts and all reasonable, actual direct third party expenses reasonably
allocated to protecting the Licensed Pictures shall be a Distribution Expense.
DWA shall cooperate fully therewith, and if recovery is through MPAA or MPA
actions, any financial recovery shall be applied consistent with MPAA or MPA
practices. To the extent Distributor pays direct additional costs related to
piracy, copyright or trademark infringement or other violations of DWA's rights
in the Licensed Pictures, such costs (to the extent pre-approved by DWA),
including anti-piracy print coding, MPAA piracy programs, and other
anti-infringement activities, shall be payable by DWA. Notwithstanding the
foregoing, DWA may elect not to have the Licensed Pictures included in such
MPAA, MPA, piracy, copyright or trademark infringement or other actions.
g. Deductibility of Section 8 Costs and Expenses:
For the avoidance of doubt, all actual, direct out-of-pocket costs and expenses
incurred by Distributor in connection with the matters described in this Section
8 shall constitute Distribution Expenses deductible against applicable Gross
Receipts hereunder.
SECTION 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
a. DWA represents, warrants and agrees that:
(i) As of the dates Distributor (A)
commences to advertise and/or distribute each Licensed Picture and (B) commences
fulfillment services in connection with the Home Video Exhibition of each
Licensed Picture, there shall be no claims, liens, encumbrances or licenses in
or to the Licensed Picture that would limit or interfere with the rights hereby
granted.
(ii) All negatives and other materials to be
delivered or made available to Distributor will be of a quality suitable for the
manufacturing of technically acceptable positive release prints of the Licensed
Pictures and trailers thereof.
53
<PAGE>
(iii) Unless DWA notifies Distributor in
writing to the contrary, there will be no restrictions that would prevent
Distributor from distributing the Licensed Pictures consistent with the
provisions of this Agreement. Subject to Distributor's paymaster obligations
with respect to Residuals, there will not be any payments which must be made by
Distributor to any actors, musicians, directors, writers or other persons who
participated in the Licensed Pictures, or to any union, guild or other labor
organization for any right to exhibit the Licensed Pictures or as compensation
in connection with such exhibition or for any other use of the Licensed Pictures
or any of the rights therein and thereto; provided, that DWA shall not be
obligated to supply any performing rights license (e.g., SESAC) which may be
required in connection with exhibition of any Licensed Picture, except only to
the extent as customary in the motion picture business for so-called "major"
studios. Applicable payments to performing rights societies (e.g., SESAC), which
Distributor is required to pay, shall be charged as Distribution Expenses
hereunder. If DWA has not supplied all music licenses necessary to Exhibit a
Licensed Picture, then Distributor shall have the option of obtaining the
required licenses (and charge the cost thereof as Distribution Expenses) or to
forego distribution of the Licensed Picture in the affected portion of the
Territory until such licenses are obtained by DWA.
(iv) The Licensed Pictures (including any
elements thereof) and any material supplied by DWA to Distributor will not
violate or infringe any trademark, trade name, contract, agreement, copyrights
(whether common law or statutory), patent, literary, artistic, dramatic,
personal, private, civil, property, or privacy right or "moral rights of
authors" or any other right, or slander or libel any Person; provided, that the
foregoing shall not apply to any material which is created by or supplied by
Distributor, except to the extent such material created by or supplied by
Distributor incorporates elements from any Licensed Picture or any elements
supplied by DWA to Distributor.
(v) It has the full right, power, and
authority to enter into and fully perform this Agreement and to comply with all
of its obligations hereunder; DWA is and will be duly organized and validly
existing under the laws of its state of formation, and is and will be duly
qualified to transact business under the laws of each state where the failure to
do so would have a material adverse effect on either the conduct of its business
or its ability to perform this Agreement. DWA has or at all relevant times
hereunder shall have the full, complete and unfettered rights, power and
authority to bind conclusively any and all of its controlled Affiliates to each
and every term, covenant and condition of this Agreement relating to or
involving any of its controlled Affiliates.
(vi) All actions taken by DWA in connection
with this Agreement shall be taken in full compliance with all applicable
statutory, administrative and/or court-made laws, rules and regulations of any
jurisdiction, and those of any other governmental body (including those relating
or pertaining to the manufacture, production, distribution, exhibition, sale,
advertising, promotion and other use of intellectual properties and/or consumer
products or services).
(vii) As of the Effective Date, no
litigation, proceeding or claim is pending or threatened against DWA that is
reasonably likely to have a material adverse effect on DWA's ability to perform
its obligations under this Agreement or any Distribution Rights relating to the
Licensed Pictures.
54
<PAGE>
b. Distributor represents, warrants and agrees that:
(i) Distributor will not suffer or authorize
any lien, encumbrance, pledge or mortgage (each, a "Lien" hereunder) to attach
to any Licensed Picture, including any Distribution Rights, or to any materials
furnished by DWA relating to the Licensed Pictures, provided the foregoing shall
not apply to any Lien created, authorized or caused by DWA, including those
pursuant to or contemplated by Section 12. below and any Lien created pursuant
to the terms of any DWA-approved Distribution Servicing Agreement or
DWA-approved Third Party Service Agreement.
(ii) No material (including advertising,
publicity, promotional, trailers, etc.) added to the Licensed Pictures or used
in connection therewith by Distributor violates or will violate, or infringes or
will infringe, any trademark, trade name, contract, agreement, copyright
(whether common law or statutory), patent, literary, artistic, dramatic,
personnel, private, civil, property, or privacy right or "moral rights of
authors" or any other right, or slander or libel any Person, provided that the
foregoing shall not apply to any material that is created by or supplied by DWA
or incorporates elements from any Licensed Picture.
(iii) Distributor has or will have written
agreements with each Subdistributor hereunder to comply with the terms and
conditions of this Agreement. The foregoing shall not apply to the CJ Agreement,
the Kadokawa Agreement, the Universal Agreement or any of the DWA-approved
Distribution Servicing Agreements listed on Schedule 1 hereto, nor to any
DWA-approved Third Party Service Agreement or any Distribution Servicing
Agreement that DWA later approves and which does not contain such a requirement.
Such agreements will be made available to DWA promptly upon its request.
(iv) Distributor has the full right, power,
and authority to enter into and fully perform this Agreement and to comply with
all of its obligations hereunder; Distributor is and will be duly organized and
validly existing under the laws of its state of formation, and is and will be
duly qualified to transact business under the laws of each state where the
failure to do so would have a material adverse effect on either the conduct of
its business or its ability to perform this Agreement. Distributor has or at all
relevant times hereunder shall have the full, complete and unfettered rights,
power and authority to bind conclusively any and all of its controlled
Affiliates to each and every term, covenant and condition of this Agreement
relating to or involving any of its controlled Affiliates.
(v) Distributor has not sold, assigned,
transferred or conveyed, and will not in the future sell, assign, transfer or
convey to any person any rights, title or interest in or to any of DWA's
Retained Rights or that is adverse to or in derogation of any of the
Distribution Rights. Distributor has not authorized, and will not in the future
authorize, any person to exercise any of DWA's Retained Rights, except as
permitted by any DWA-approved Distribution Servicing Agreement or any
DWA-approved Third Party Service Agreement. Distributor has not exercised any
right or taken any action, and will not in the future exercise any right or take
any action, that might derogate from or unfairly compete with any of DWA's
Retained Rights or the quiet and peaceful possession and enjoyment of DWA's
Retained Rights. In the exercise of the Distribution Rights and otherwise in the
fulfillment of Distributor's obligations pursuant to this Agreement, Distributor
will not engage in any act that violates any
55
<PAGE>
law, rule, act or regulations of any governmental authority. All actions taken
by Distributor in connection with this Agreement shall be taken in full
compliance with all applicable statutory, administrative and/or court-made laws,
rules and regulations of any jurisdiction, and those of any other governmental
body (including those relating or pertaining to the manufacture, production,
distribution, exhibition, sale, advertising, promotion and other use of
intellectual properties and/or consumer products or services).
(vi) All consideration to be provided by
Distributor pursuant to each third party business arrangement, including the
DWA-approved Distribution Servicing Agreements and DWA-approved Third Party
Service Agreements, to which Distributor is a party and all of the terms,
covenants and conditions provided to be kept or performed by Distributor
pursuant to each such third party business arrangement will be paid, kept,
performed and discharged in full by Distributor unless excused by the other
party thereto or by operation of law. There currently is no breach or other act
of default, and in the future there will be no breach or other act of default by
Distributor under any of such third party business arrangements, that would have
a material adverse affect on Distributor's business or its ability to perform
under this Agreement. Subject to any limitations and restrictions contained in
the DWA-approved Distribution Servicing Agreements or the DWA-approved Third
Party Service Agreements, Distributor is not a party to any third party business
arrangement that will conflict with any of DWA's approval rights, and
Distributor has the full right, power and authority in all of its third party
business arrangements to comply fully with all of DWA's approvals and rights as
set forth in this Agreement.
(vii) As of the Effective Date, no
litigation, proceeding or claim is pending or threatened against Distributor
that is reasonably likely to have a material adverse effect on Distributor's
ability to perform its obligations under this Agreement, the Distribution Rights
with respect to the Licensed Pictures, or on any of DWA's Retained Rights.
SECTION 10. INDEMNITY.
a. Indemnity Obligations: Each party ("Indemnitor") shall at its own cost and
expense indemnify, defend and hold the other party, its and their parents and
affiliates, and their respective employees, agents, managers, subdistributors,
directors and shareholders (collectively, "Indemnitee") harmless from and
against any and all loss, liability or expense resulting from any claim, demand
or suit which may be made or brought against Indemnitee by reason of any claim
by any third party that (a) (i) a Licensed Picture, or any element thereof,
including the sound and music synchronized therewith; (ii) any material
(including advertising, publicity, promotional trailers, etc.) added to the
Licensed Picture or used in connection therewith, to the extent any of the above
are supplied by or at the request or direction of or on behalf of Indemnitor, or
to the extent any of the above are added by the Indemnitor without Indemnitee's
knowledge, violates or infringes upon the trademark, trade name, patent,
copyright, literary, dramatic, musical, artistic, personal, private, publicity,
civil, property or contract right, right of privacy, the moral rights of authors
or any other right of any Person; or (b) notwithstanding anything to the
contrary contained in Section 11.1.e., a breach of any representation, warranty
or agreement by the Indemnitor hereunder. Notwithstanding the foregoing, DWA
shall so indemnify Distributor and the other Distributor Indemnitees as set
forth above with respect to third party claims arising out of material created
by or supplied by Distributor to the extent such claims are based upon
56
<PAGE>
elements from any Licensed Picture incorporated in such material, or any
material supplied by DWA to Distributor and used by Distributor in a manner
authorized by DWA. Distributor will not be entitled to any indemnity hereunder
to the extent that losses arise or result because Distributor fails to withdraw
any Licensed Picture which is the basis of any such claim from distribution
promptly as, when and to the extent so instructed by DWA; however, Distributor
will be entitled to an indemnity hereunder if Distributor honored an instruction
from DWA not to withdraw such Licensed Picture from distribution.
Notwithstanding the foregoing, (a) in no event will DWA or any DWA Indemnitor be
required to indemnify Distributor or any Distributor Indemnitee, for any claim,
demand or suit which may be made or brought against Distributor or any
Distributor Indemnitee for the satisfaction of any of the following: (i) the
Advance (as defined in the Universal Agreement) owed by Distributor to Universal
under the Universal Agreement, including any Advance amounts scheduled to be
forgiven by Universal that are not forgiven, but excluding any portion of the
Advance, including any Animation Advance Amount, expressly assumed by DWA
pursuant to the Interparty Agreement dated as of ________, 2004 among
Distributor, DWA and Universal, (ii) resulting from the acceleration of the
Distributor's Class U, Class T/T or Class K limited liability company interests,
or (iii) related to subordinated debt issued by Distributor to Home Box Office
that is not expressly assumed by DWA as scheduled in the Separation Agreement
(collectively, the "Distributor Excluded Liabilities"), and (b) in no event will
Distributor or any Distributor Indemnitor be required to indemnify DWA or any
DWA Indemnitee for any claim, demand or suit which may be made or brought
against DWA or any DWA Indemnitee for the satisfaction of any of the following:
(i) any portion of the Advance, including any Animation Advance Amount,
expressly assumed by DWA, or (ii) any portion of the subordinated debt issued by
Distributor to Home Box Office that is expressly assumed by DWA (as scheduled in
the Separation Agreement)(collectively, the "DWA Excluded Liabilities").
b. Insurance: DWA shall maintain and cause
Distributor to be added as an additional insured (without responsibility for
premiums or deductibles) with respect to the Licensed Pictures under DWA's
Errors and Omissions policy (to the extent commercially available) pertinent to
exhibition of the Licensed Pictures in the Territory. Such policy shall be for a
term, in amounts and containing a deductible and notice provision as is
customary in the motion picture industry. All such insurance coverage shall be
primary to any other coverage maintained by Distributor. Upon request by
Distributor, DWA shall promptly forward to Distributor Certificates of Insurance
evidencing DWA's coverage. Notwithstanding the foregoing, DWA may elect in its
sole discretion to self-insure. Distributor shall be fully responsible for the
loss or destruction of any Licensed Pictures, Tangible Film Materials or
Marketing Materials in Distributor's possession or control, unless and to the
extent that the negligent or wrongful conduct of DWA and/or a third party with
whom DWA contracts directly results in such loss or destruction (and further
provided that such negligent or wrongful conduct is not of the type for which
Distributor would be responsible under industry customs). The Licensed Pictures
shall be covered, and DWA shall be added as an additional insured (without
responsibility for premiums or deductibles), under Distributor's property,
casualty and liability insurance; and, with respect to advertising materials
created by Distributor, Distributor shall maintain errors and omissions
insurance (to the extent commercially available), and the proportionate cost of
such errors and omissions insurance shall be a Distribution Expense hereunder.
All such insurance coverage shall be primary to any other coverage maintained by
57
<PAGE>
DWA. Upon request by DWA, Distributor shall promptly forward to DWA Certificates
of Insurance evidencing Distributor's coverage.
SECTION 11. DEFAULT; REMEDIES AND TERMINATION
11.1 Default: A party shall be deemed in default of this
Agreement upon the happening of any of the following:
a. Such party fails to make any payment when due
hereunder or to render any statement when required hereunder. The defaulting
party shall have five (5) Business Days to cure such default after receiving
written notice from or on behalf of the non-defaulting party that such payment
or statement has not been made or rendered within the required time;
b. Such party, or any Affiliate of such party: (i)
commences a voluntary case or proceeding with respect to any or all of its
assets or business under any Bankruptcy Law; (ii) is the subject of an
involuntary case or petition with respect to any or all of its assets or
business under any Bankruptcy Law and the involuntary case or petition is not
dismissed or withdrawn within 30 days after its filing; (iii) consents to the
commencement or pendency of a case or proceeding with respect to any or all of
its assets or business under any Bankruptcy Law; (iv) seeks the appointment of a
trustee, receiver, liquidator or other custodian of any or all of its assets or
business under any Bankruptcy Law; (v) consents to the appointment of a trustee,
receiver, liquidator or other custodian of any or all of its assets or business
under any Bankruptcy Law; (vi) is the subject of an order of any court, agency
or other governmental authority directing the appointment of a trustee,
receiver, liquidator or other custodian of any or all of its assets or business
under any Bankruptcy Law; (vii) seeks an order from any court, agency or other
governmental authority directing the liquidation, sale, rehabilitation,
reorganization or other disposition of any or all of its assets or business;
(viii) is the subject of any order of a court, agency or other governmental
authority directing the liquidation, sale rehabilitation, reorganization or
other disposition of any or all of its assets or business; (ix) is, or admits
that it is, generally not paying its debts as the debts become due; (x) is, or
admits that it is, insolvent; or (xi) makes an assignment of any or all of its
assets or business for the benefit of its creditors. For purposes of this
paragraph, "Bankruptcy Law" means: the United States Bankruptcy Code (11 U.S.C.
Section 101 et seq); and all other liquidation, dissolution, rehabilitation,
conservatorship, bankruptcy, assignment for the benefit of creditors,
moratorium, extension, rearrangement, receivership, insolvency, reorganization
or any other similar debtor relief laws of any applicable jurisdiction from
time-to-time in effect that affects the rights of creditors generally;
c. Any Licensed Picture or any material portion
thereof is attached or levied upon as a consequence of the action or inaction of
such party in violation of its representations or warranties hereunder, and such
attachment or levy has a material adverse effect on the licensing, distribution
or exploitation of the Licensed Picture, and the same is not released or
dissolved within thirty (30) days thereafter;
d. Substantially all of the assets of such party are
attached or levied upon and the same is not released or dissolved within thirty
(30) days thereafter;
58
<PAGE>
e. Such party otherwise is in breach of a material
provision of this Agreement, including a breach of any material representation
or warranty hereunder that has a material adverse effect on the licensing,
distribution or exploitation of the Licensed Pictures hereunder. For the
avoidance of doubt, violation of a third party right (as set forth in Sections
9.a.(iv) and 9.b.(ii), or violation of any other representation or warranty in
Section 9. above that does not have a material adverse effect on the licensing,
distribution or exploitation of the Licensed Pictures hereunder, shall not
constitute a default pursuant to this Section 11., provided the indemnity
obligations in Section 10.a. shall be fully applicable to the representations,
warranties and covenants set forth in Section 9. The party in breach shall have
five (5) Business Days to cure such breach after receiving written notice of
such breach from or on behalf of the non-breaching party or, if a cure cannot
reasonably be effected within such period, such party must begin to cure such
breach within five (5) Business Days and to prosecute the same diligently
thereafter;
f. In the case of Distributor: Distributor is in
breach or default under any DWA-approved Distribution Servicing Agreement or a
Third Party Service Agreement, and such breach or default has or will have a
material adverse affect on Distributor's ability to distribute the Licensed
Pictures in accordance with this Agreement; or
g. In the case of DWA: If DWA fails to Deliver an
Accepted Additional Picture or a Prospective Qualified Picture solely due to the
fact that such Motion Picture was either abandoned by DWA or sold, licensed or
otherwise alienated in accordance with and as permitted by Section 3.1.b. above
and Distributor had theretofor incurred Distribution Expenses or bona fide
binding commitments for Distribution Expenses in connection with such Motion
Picture, provided that Distributor's sole remedy for DWA's failure to Deliver in
the aforementioned circumstances shall be to require DWA (and DWA shall be
obligated) to repay to Distributor all such Distribution Expenses, together with
interest on such paid amounts calculated at the rate specified in Section 8.6.e.
If DWA fails to Deliver such Accepted Additional Picture, or Prospective
Qualified Picture, DWA shall retain all Distribution Rights thereto subject to
the terms of this Agreement, including Distributor's right to obtain an
exclusive license of the Distribution Rights in accordance herewith.
Notwithstanding anything to the contrary contained in this Section 11., if there
is any matter giving rise to a right of termination hereunder which is then the
subject of a Good Faith Dispute, (i) no party shall be considered in default of
this Agreement with respect to such matter during the pendency thereof, (ii) no
party shall attempt to terminate this Agreement or any of the Distribution
Rights licensed hereunder during the pendency thereof with respect to such
matter, (iii) each party shall continue to perform its obligations in accordance
with the terms hereof, and (iv) the cure periods provided herein above shall
toll and be available following the resolution of such Good Faith Dispute
(whether resolved by mutual agreement, arbitration or otherwise).
11.2 Remedies and Termination:
a. DWA Termination Right.
(i) In the event of a default by Distributor (as
determined pursuant to Section 11.1. above), DWA shall have the right to
terminate this Agreement, including the right
59
<PAGE>
(but not obligation) (x) to order the immediate cessation of any or all
distribution of the Licensed Pictures and the immediate return of any or all
Tangible Film Materials (in accordance with Section 15 below), or (y) at DWA's
election, to terminate the Output Term but require Distributor to continue
distribution in accordance with the terms of this Agreement (subject to Sections
11.2.c. and 11.2.d. below) of some or all Licensed Pictures previously delivered
and either in release or ready for release as and for the duration of the
applicable License Term. In the event Distributor is permitted to continue
distributing some or all of the previously delivered Licensed Pictures,
Distributor will remain obligated to make all accountings and payments set forth
herein with respect to such Licensed Pictures, and Distributor and DWA shall
continue to perform all of their respective other obligations hereunder with
respect to such Licensed Pictures.
(ii) In the event:
(A) Both David Geffen and Steven Spielberg
cease to be employees of Distributor and cease to be meaningfully involved
(whether as an employee, consultant, or otherwise) in the management or
oversight of Distributor's Motion Picture distribution business (the "Principals
Departure"); or
(B) A "Distributor Change of Control" occurs
as hereinafter defined. Distributor Change of Control means (a) the acquisition
of ownership, directly or indirectly, beneficially or of record, of equity
interests in Distributor representing more than 35% of either the aggregate
ordinary voting power or the aggregate equity value represented by the issued
and outstanding equity interests in Distributor, whether pursuant to merger,
consolidation, issuances by Distributor of equity securities or otherwise by any
Person or group (within the meaning of Section 13(d) (3) or 14 (d) (2) of the
Securities Exchange Act of 1934, as amended), (b) the sale of all or
substantially all of the property, business or assets of Distributor or of its
Motion Picture studio division to any Person (excluding internal reorganizations
and transactions effected to reconstitute Distributor as a corporation), or (c)
the liquidation of Distributor;
then, except in the case of an assignment to Universal or to a Successor Entity
pursuant to Section 17. below, upon notice to Distributor, DWA shall have the
right to terminate this Agreement as provided in Section 11.2.a.(i) above. Such
termination notice must be served within sixty (60) days from DWA obtaining
knowledge of such event and shall be effective thirty (30) days after service
thereof, provided that with respect to the occurrence of the Principals
Departure, Distributor shall have a minimum of fifteen (15) days to suggest a
replacement of comparable stature in the theatrical Motion Picture industry to
fulfill the duties then being rendered by such departed persons. DWA shall have
the absolute right in its sole discretion to reject the suggested replacement
and terminate this Agreement in accordance with the terms hereof.
b. Distributor Termination Right.
(i) In the event of a default by DWA (as
determined pursuant to Section 11.1. above), Distributor shall have the right to
terminate this Agreement, including the right (but not the obligation) to
immediately cease distribution and exploitation of the Licensed Pictures and to
immediately deliver to DWA any and all Tangible Film Materials (in accordance
with Section 15 below) relating thereto to DWA, at DWA's sole cost and expense.
60
<PAGE>
(ii) In the event DWA fails to Deliver to
Distributor three (3) Qualified Pictures during the initial five (5) years of
the Output Term, six (6) Qualified Pictures during the initial ten (10) years,
if applicable, of the Output Term, nine (9) Qualified Pictures during the
initial fifteen (15) years, if applicable, of the Output Term, or twelve (12)
Qualified Pictures during the initial twenty (20) years, if applicable, of the
Output Term, then Distributor shall have the right to (A) terminate this
Agreement, including the right (but not the obligation) to immediately cease
distribution and exploitation of the Licensed Pictures and to immediately
deliver to DWA any and all Tangible Film Materials (in accordance with Section
15 below) relating thereto to DWA, at DWA's sole cost and expense; provided, in
the event of such termination, unrecouped Distribution Expenses as of the date
of termination shall remain nonrecourse as to DWA and shall be recouped by
Distributor solely from Gross Receipts in accordance with this Agreement, or (B)
terminate only the Output Term and continue the distribution (in accordance with
the terms of this Agreement) of Licensed Pictures Delivered prior to the date of
termination.
c. Existing Third Party Agreements. Subject to the
provisions of this Section 11.2.c., notwithstanding the expiration or
termination of this Agreement, or the Output Term or the License Term of each
Licensed Picture hereunder, Distributor shall have the right to honor all
then-existing contractual commitments with respect to current and prospective
Licensed Pictures. DWA shall cooperate with Distributor and, at Distributor's
request and expense, shall take such actions that are reasonably necessary or
desirable to ensure that Distributor is able to perform its obligations under
all then-existing contractual commitments with respect to current and
prospective Licensed Pictures. Notwithstanding any other provision in this
Agreement, the continuation of this Agreement or any such extension of this
Agreement, or the Output Term or the License Term of any Licensed Picture as
contemplated by this Agreement in connection with any DWA-approved Distribution
Servicing Agreements and Third Party Service Agreements shall be expressly
subject to and conditioned upon Distributor continuing to pay DWA all amounts
required to be paid to DWA pursuant to this Agreement and Distributor continuing
to perform all of its other obligations hereunder in accordance with the terms
hereof with respect to such DWA-approved contractual commitments. Subject to the
foregoing:
(i) Irrespective of any termination pursuant
to this Section 11, this Agreement, solely as it relates to those Distribution
Rights subject to DWA-approved Distribution Servicing Agreements and Third Party
Service Agreements, shall remain in place and such Distribution Rights shall
continue to be licensed to Distributor hereunder and in accordance with the
terms of this Agreement until the expiration of each DWA-approved Distribution
Servicing Agreement or Third Party Service Agreement, as applicable; provided,
Distributor may elect to waive its Distribution Fee, in which event the last
sentence of Section 7.1 above shall not apply. Distributor shall have the right
to endeavor to cause its Subdistributors and any Person to release Distributor
from its obligations under the applicable DWA-approved Distribution Servicing
Agreement(s) and Third Party Service Agreement(s) with respect to the Licensed
Picture and to enter into a direct agreement(s) with DWA with respect thereto.
If any such Subdistributor or Person is willing to enter into a direct agreement
with DWA, on terms and conditions no less favorable to DWA than those contained
in the DWA-approved Distribution Servicing Agreement or Third Party Service
Agreement, as applicable, DWA shall be obligated to enter into such agreement
with such Subdistributor or Person.
61
<PAGE>
(ii) The parties acknowledge that the
termination of this Agreement shall not automatically terminate the DWA-approved
Distribution Servicing Agreements or the Third Party Service Agreements then in
effect, including licenses authorizing Television Exhibition during the License
Term. Each DWA-approved Distribution Servicing Agreement and Third Party Service
Agreement shall terminate with respect to the Licensed Pictures and the
Distribution Rights subject thereto in accordance with the terms thereof, unless
any such agreement terminates by its terms concurrently with termination of this
Agreement.
d. Continuation of Distribution Fees and Distribution
Expenses. For the avoidance of doubt, Distributor shall remain entitled to
charge its Distribution Fees and recoup its Distribution Expenses on Licensed
Picture(s) for any period during which the subject Distribution Rights are
licensed to and serviced by Distributor.
e. Further Documents. On expiration or other
termination of each License Term, or the Term, Distributor will immediately
execute such quitclaims and other documents as DWA's counsel deems necessary or
advisable to evidence the termination of the Distribution Rights with respect to
each Licensed Picture.
f. Remedies Not Exclusive. The foregoing rights and
remedies are in addition to and not in lieu of or in derogation of the rights
and remedies otherwise available to Distributor or to DWA in the event of
default by the other party.
11.3 Special Termination Right: In the event (i) the Universal
Agreement expires or is terminated by either party thereto; or (ii) Distributor
ceases to be engaged in the theatrical distribution business in the Domestic
Territory (and therefore ceases to directly release for Theatrical Exhibition
Motion Pictures produced or acquired by Distributor) and Theatrical Exhibition
rights in the Domestic Territory to Licensed Pictures hereunder are not assigned
or sublicensed to Universal pursuant to Section 17. below, then, in either
event, each of DWA and Distributor shall have the right to terminate this
Agreement (subject to the applicable provisions of Section 11.2.c. above) upon
the provision of notice to the other party as hereinafter provided.
a. In the case of clause (i) above, to be effective,
such notice must be given within (90) days of the termination of the Universal
Agreement, and notwithstanding termination of this Agreement by either party,
DWA shall have the right (but not the obligation) to order the immediate
cessation of any or all distribution of the Licensed Pictures (subject to
Section 11.2.c.) and the immediate return of all Tangible Film Material and
Marketing Materials or, at DWA's election, require Distributor to continue
distribution (subject to Sections 11.2.c. and 11.2.d.) of some or all of the
Licensed Pictures delivered to Distributor and either in release or scheduled
for release as of the date of such notice (and actually released within 180 days
of such notice), as and for the duration of the initial period of Theatrical
Exhibition and for the initial period of Home Video Exhibition (not to exceed
180 calendar days) in each country within the Territory, subject to all times to
all otherwise applicable provisions of this Agreement regarding the replacement
or substitution of a DWA-approved Distribution Servicing Agreement.
b. In the case of clause (ii) above, Distributor
shall be obligated to provide DWA with not less than 180 calendar days notice of
Distributor's intention to cease
62
<PAGE>
operating its theatrical distribution business in the Domestic Territory and
terminate this Agreement effective upon expiration of the notice period. DWA
shall have the right at any time after receipt of such notice from Distributor
to terminate this Agreement and shall have the right (but not the obligation) to
order the immediate cessation of any or all distribution of the Licensed
Pictures (subject to Section 11.2.c.) and the immediate return of all Tangible
Film Material and Marketing Materials or, at DWA's election, require Distributor
to continue distribution (subject to Sections 11.2.c. and 11.2.d.) of some or
all of the Licensed Pictures delivered to Distributor and either in release or
scheduled for release as of the date of such notice, as and for the duration of
the initial period of Theatrical Exhibition and for the initial period of Home
Video Exhibition (not to exceed 180 calendar days) in each country within the
Territory, provided Distributor's obligation to so continue to exploit the
Licensed Pictures shall cease upon expiration of the aforementioned 180 calendar
days' notice period.
c. Any termination of this Agreement pursuant to Section
11.2.a.(ii), Section 11.2.b.(ii) or this Section 11.3 shall not constitute a
breach of, or default under, this Agreement and neither party shall have any
liability to the other solely on account of such termination.
SECTION 12. MUTUAL SECURITY AGREEMENTS AND DOCUMENTS.
12.1. Security Interest to Distributor: Subject to the terms
and conditions hereof, DWA will grant and assign to Distributor, pursuant to a
security agreement to be executed concurrently herewith, a security interest in
and to, and copyright mortgage on, (a) the Distribution Rights in and to the
Licensed Pictures, (b) all of DWA's rights hereunder with respect to the
Licensed Pictures (including the right to receive monies, but specifically
excluding the Retained Rights), and (c) each of the following, but only to the
extent necessary for Distributor to Exploit the Distribution Rights in
accordance with this Agreement: (i) Tangible Film Materials, (ii) Marketing
Materials, (iii) underlying literary and music materials, (iv) the Licensed
Marks, and (v) the copyright and all registrations, renewals and extensions
thereof, (the "DWA Collateral") in order to secure the performance of DWA's
obligations and Distributor's rights under this Agreement (the "DWA Secured
Obligations"). The security interest and copyright mortgage granted by DWA
hereunder will be entitled to priority over all other security interests in the
DWA Collateral, subject to the security interests in favor of lenders or
financial institutions providing financing for DWA's general corporate purposes
and the security interest of HBO in the United States pay television rights to
certain Licensed Pictures (each, a "DWA Senior Secured Party"). DWA will execute
and file or record, as appropriate, any other security agreements, UCC financing
statements, copyright mortgages and other documents, instruments or agreements
reasonably necessary to evidence, perfect, and preserve the security interest
and copyright mortgage granted to Distributor hereunder, and Distributor will
have all rights and remedies of a secured party pursuant to applicable law. The
granting of the security interest and copyright mortgage hereunder by DWA does
not violate the rights of any third party under any agreement with DWA,
judgment, statute or otherwise, and does not require the prior consent of any
third party, except each DWA Senior Secured Party. DWA will endeavor in good
faith to obtain the requisite consent of each DWA Senior Secured Party. For the
avoidance of doubt, the granting of the security interest and copyright mortgage
hereunder by DWA shall not alter or amend the provisions of Section 6.1 that
require Distributor to recoup Distribution Expenses on a Licensed
Picture-by-Licensed Picture basis or otherwise alter or amend the Licensed
Picture-by-
63
<PAGE>
Licensed Picture accounting obligations under Section 8; provided, however, the
foregoing shall not in any way alter, impair, amend, abrogate or otherwise
affect any of Distributor's rights and remedies as a secured party hereunder or
under applicable law in the event of any breach by DWA of any DWA Secured
Obligation. The grant of the security interest and copyright mortgage by DWA
hereunder with respect to any Licensed Picture shall be effective upon the later
of (i) the first date upon which the requisite consent of each DWA Senior
Secured Party shall have been obtained, and (ii) commencement of the License
Period with respect to such Licensed Picture.
12.2 Security Interest to DWA: Distributor will grant and
assign to DWA, pursuant to a security agreement to be executed concurrently
herewith, a security interest in and to, and copyright mortgage on, the
Distribution Rights in and to each Licensed Picture and Distributor's rights in
and to the Gross Receipts, Distribution Fees, Distribution Expenses, the
Tangible Film Materials, the Marketing Materials, the DWA-approved Distribution
Servicing Agreements and Third Party Service Agreements and related assets
(collectively, the "Distributor Collateral") in order to secure all of
Distributor's obligations to DWA hereunder. The security interest and copyright
mortgage granted hereby will be entitled to priority over all other security
interests in the Distributor Collateral, including the security interests in
favor of the lenders providing financing for Distributor's general corporate
purposes pursuant to the Credit Agreement among Distributor and such lenders
dated as of October ___, 2004 (except to the extent the security interests in
favor of such lenders relate to the Distribution Fees and Distribution Expenses
owed to the Distributor), but excluding (i) the security interest of HBO in the
United States pay television rights to certain of the Licensed Pictures, and
(ii) the security interest, if any, in favor of Steven Spielberg, Amblin'
Entertainment, Inc. and other entities owned or controlled by Steven Spielberg
in the Distributor Collateral, to secure Distributor's performances of certain
indemnity obligations thereto. Distributor will execute and file or record, as
appropriate, any other security agreements, UCC financing statements, copyright
mortgages and other documents, instruments or agreements reasonably necessary to
evidence, perfect, and preserve the security interest and copyright mortgage
granted to DWA hereunder, and DWA will have all rights and remedies of a secured
party pursuant to applicable law. The granting of the security interest and
copyright mortgage hereunder by Distributor does not violate the rights of any
third party under any agreement with Distributor, judgment, statute or
otherwise, and does not require the prior consent of any third party, except HBO
("Distributor Senior Secured Party"). Distributor will endeavor in good faith to
obtain the requisite consent of the Distributor Senior Secured Party. The grant
of the security interest and copyright mortgage by Distributor hereunder with
respect to any Licensed Picture shall be effective upon the later of (i) the
first date upon which the requisite consent of the Distributor Senior Secured
Party shall have been obtained, and (ii) commencement of the License Period with
respect to such Licensed Picture.
12.3 Intercreditor Arrangements: DWA and Distributor will
endeavor in good faith to cause each DWA Senior Secured Party and the
Distributor Senior Secured Party to enter into appropriate intercreditor
agreements among DWA, Distributor, each DWA Senior Secured Party and the
Distributor Senior Secured Party with respect to their respective security
interests in the DWA Collateral and the Distributor Collateral.
SECTION 13. COPYRIGHT.
64
<PAGE>
13.1 Protection and Notice: DWA at its sole expense shall take
all actions reasonably sufficient to secure copyright protection for the
Licensed Pictures. Distributor will cooperate as reasonably required by DWA in
connection with actions undertaken by DWA to protect and enforce copyrights,
trademarks, etc. DWA shall include in the Licensed Pictures as delivered to
Distributor a copyright notice in conformity with the laws of the United States
and the Universal Copyright Convention designating as copyright proprietor such
entity as DWA shall determine. As a condition to the right of public
distribution licensed to Distributor hereunder, such copyright notice shall
appear on all copies of any Licensed Picture distributed hereunder.
13.2 Notice of Claims; Infringements: Distributor and DWA
shall promptly notify the other of any claims against or violations or
infringement of any of Distribution Rights hereunder, or of any claim against
any copyright with respect to any Licensed Picture, which come to such party's
attention. Distributor, at DWA's instruction and at DWA's sole cost and expense,
shall take all reasonable steps by action at law or otherwise to prevent any
unauthorized exhibition or distribution of the Licensed Pictures in violation of
the rights granted to Distributor hereunder or to prevent impairment,
encumbrance or infringement of any Distribution Rights hereunder or of the
copyright.
SECTION 14. OWNERSHIP. Subject to the rights expressly licensed to
Distributor herein, as between DWA and Distributor, DWA shall be the sole and
exclusive owner of all rights, title and interest in and to the Licensed
Pictures at all times. DWA's ownership includes all copyrights, trademarks,
patents, titles, designs, artwork, characters, stills, drawings, literary
material, film materials, computer models, logos, stories, plots and any other
intellectual properties and rights in, to, or arising out of the Licensed
Pictures or any element thereof regardless of whether created by DWA or by any
other person on DWA's behalf. Distributor shall not have any ownership or
security interest in, lien on, or other creditor's rights with respect to the
Licensed Pictures, any elements or components thereof (excluding only
Distributor's ownership of the Tangible Film Materials created or produced by
Distributor in accordance with this Agreement), the Retained Rights and any
revenue derived from exploitation of the Retained Rights, any of the literary,
dramatic, musical or other materials upon which the Licensed Pictures are based
or which are contained in the Licensed Pictures, or any of the copyrights,
trademarks, computer models, design patents, technology or similar or analogous
rights in or to the Licensed Pictures or any of the foregoing.
SECTION 15. INVENTORY OF MATERIALS.
15.1 Return / Destruction of Tangible Film Materials. Subject
to Section 15.2. below, upon expiration or termination of (i) each License Term,
or (ii) this Agreement, all Tangible Film Materials relating to the applicable
Distribution Rights and Licensed Picture(s) shall become the property of DWA,
free and clear of all claims, liens, encumbrances or other interests. Within
sixty (60) days after the expiration or termination of each License Term,
Distributor shall furnish DWA with a complete written inventory with respect to
each Territory, listing all Tangible Film Materials then in the possession or
under the control of Distributor, a Distributor Affiliate, a Subdistributor or
any Person pursuant to a DWA-approved Distribution Servicing Agreement or Third
Party Service Agreement. Within thirty (30) days following DWA's receipt of the
foregoing written inventory, DWA shall notify Distributor in writing
65
<PAGE>
regarding which of the Tangible Film Materials listed in such written inventory
are to be delivered to DWA and which of the Tangible Film Materials listed in
such written inventory are to be destroyed. Further in this regard:
a. If designated by DWA, Distributor shall deliver to
DWA (within thirty [30] days following receipt of notice from DWA as set forth
above) all Tangible Film Materials that are then within the possession or under
the control of Distributor, a Distributor Affiliate, a Subdistributor or any
Person pursuant to a DWA-approved Distribution Servicing Agreement.
Distributor's direct third party costs of complying with this Section 15.1.a.
shall be included in Distribution Expenses, provided such delivery shall be at
Distributor's sole cost and expense in the event of termination for a
Distributor default.
b. Unless designated otherwise by DWA, all or any
portion of the Tangible Film Materials set forth in Distributor's written
inventory that DWA has not instructed Distributor to deliver to DWA shall be
destroyed. Distributor shall furnish DWA (within thirty [30] days following
receipt of notice from DWA as set forth above) with an affidavit of such
destruction, and shall furnish such additional verification of such destruction
as DWA shall designate. Distributor's direct costs of complying with this
Section 15.1.b. shall be included in Distribution Expenses, provided such
destruction shall be at Distributor's cost and expense in the event of
termination for a Distributor default.
c. With respect to Distributor's then existing
inventory of Video Devices, DWA shall have the option, in its sole discretion,
to either: (i) permit Distributor to sell off its then-existing inventory of DWA
Video Devices upon the same terms and conditions as provided herein for a period
not to exceed 180 calendar days following such termination date (subject to
appropriate adjustments to outside date for Distributor's provision of the Final
Payment Report for the applicable Licensed Picture); (ii) require Distributor to
deliver its then-existing inventory of DWA Video Devices and all related
materials to DWA (such delivery to be at Distributor's sole cost and expense in
the event of a termination for a Distributor default, otherwise such delivery
shall be at DWA's sole cost and expense); (iii) immediately destroy or
demagnetize Distributor's then-existing inventory of DWA Video Devices (such
destruction to be at Distributor's cost and expense in the event of a
termination for a Distributor default, otherwise such destruction shall be at
DWA's sole cost and expense), in which event Distributor shall promptly (but in
no event more than ten (10) Business Days following destruction or
demagnetization) furnish DWA with certificates of destruction or proof of
demagnetization, as the case may be; or (iv) any reasonable combination of the
foregoing. In addition, Distributor shall promptly provide DWA with a list of
all outstanding orders for DWA Video Devices.
15.2 Post License Term Collections / Returns: Notwithstanding
the expiration of the License Term for a given Licensed Picture, for a period of
six (6) months thereafter Distributor shall continue to use its commercially
reasonable best efforts to continue to collect all Gross Receipts and shall
process and administer any returns of Video Devices of such Licensed Picture
sold to video suppliers and/or video retailers but returned during such period.
For the avoidance of doubt, Distributor shall remain entitled to take a
Distribution Fee on, and recoup its Distribution Expenses in connection with,
any such Gross Receipts and shall be entitled to recoup its Distribution
Expenses in connection with returns of Video Devices. DWA and Distributor shall
cooperate fully and in good faith with each other to achieve a smooth transition
66
<PAGE>
at the end of the License Term, and DWA shall request that any successor
distributor do so as well.
SECTION 16. FORCE MAJEURE. Neither party shall be liable to the other
because of any failure to perform hereunder caused by any cause beyond its
control, including fire, earthquake, flood, epidemic, accident, explosion,
casualty, strike, lockout, labor controversy, riot, civil disturbance, act of a
public enemy, embargo, war, act of God or law, except as expressly provided
herein to the contrary; provided, that Distributor shall in no event be required
to accede to or to cause any Distributor Affiliate to accede to the demands of
any guild, union or similar organization in order to bring to an end a strike,
lockout or labor controversy, or to accede to the demands of any suppliers or
others not a party hereto which Distributor considers unreasonable. This Section
16. shall not diminish or impair the payment obligations of either party
hereunder.
SECTION 17. ASSIGNMENT. This Agreement may not be assigned by
Distributor or DWA without the prior written consent of the other party, except
that (a) without securing the prior written consent of DWA but subject to
Section 4.6. above, Distributor may (without diminishing its obligations
hereunder) from time to time assign or delegate any or all of its rights and
obligations hereunder to one or more Distributor Affiliates, (b) if Distributor
ceases to operate its theatrical distribution business in the Domestic
Territory, then, with respect to all Licensed Pictures hereunder, Distributor
may assign or sublicense to Universal Theatrical Exhibition in the Domestic
Territory on the same terms and conditions as set forth in this Agreement, and
if required by the terms of the Universal Agreement, such additional
Distribution Rights then subject to the Universal Agreement, including certain
Non-Theatrical Exhibition in the International Territory and Home Video
Exhibition throughout the Territory, and (c) Distributor may assign to a
Successor Entity (as defined below) all of its rights hereunder in the event
Distributor is acquired by or merged into another entity, or in connection with
a sale or assignment of all or substantially all of its theatrical distribution
business to another entity (each, a "Successor Entity"); provided, that in the
case of (c) above (i) Distributor and such assignee shall have executed such
instruments, agreements or documents as DWA may reasonable request to ensure the
legal and binding assumption by the assignee of Distributor's obligations
hereunder, (ii) such assignee shall have granted to DWA an equivalent security
interest in and lien on the Distribution Rights and related assets as granted by
Distributor to DWA hereunder and (iii) Distributor shall remain liable for all
of its obligations hereunder. Nothing contained in this Section 17. shall (i)
prohibit or limit Distributor's right to assign or delegate any or all of its
responsibilities hereunder to one or more Distributors Affiliates or to engage
Subdistributors, or otherwise exploit the rights granted to Distributor
hereunder, or (ii) prohibit or limit Distributor's sale or transfer of its
assets (other than its rights under this Agreement) in the ordinary course of
business. Distributor shall remain liable for all of its obligations hereunder
notwithstanding any such assignment, unless such assignment is to Universal or
to another U.S. major motion picture studio or other financially responsible
Person approved by DWA.
SECTION 18. STANDARD OF CARE. Except as otherwise specifically directed
or approved in writing by DWA and subject to the terms and conditions of the
Universal Agreement (but only in connection with Theatrical Exhibition in the
International Territory and Home Video Exhibition in the Territory), in all
actions under this Agreement, Distributor shall act, in accordance with at least
that standard of care that it exercises with respect to the distribution of
67
<PAGE>
comparable Motion Pictures produced or distributed by Distributor under similar
circumstances in the applicable territories and media, taking into account
differences in production budgets, cast, genre, rating, prerelease audience
surveys and test results, theatrical box office and other performance metrics,
local tastes and other established factors that Distributor uses in good faith
on a nondiscriminatory basis to make determinations in connection with the
exploitation of Motion Pictures produced or distributed by Distributor,
excluding in each case, any Motion Picture produced or directed by Steven
Spielberg. Without limiting the generality of the foregoing, Distributor will
use its commercially reasonable best efforts to ensure that the services
provided to DWA hereunder by Distributor will be no less than substantially
equivalent in overall quantity, level and priorities (including priorities in
booking theaters, circuits and booking dates) to the services provided by
Distributor under similar circumstances in connection with the distribution of
comparable Motion Pictures produced or distributed by Distributor with similar
Domestic Territory theatrical box office grosses (or, as applicable, were
anticipated to have similar box office grosses at the time any such services
were contracted for or provided), excluding in each case, any Motion Pictures
produced or directed by Steven Spielberg.
SECTION 19. DISTRIBUTOR DISTRIBUTION CREDIT. Distributor shall have the
right to accord itself its customary distribution credit (with integrated logo)
for each Licensed Picture on screen in the end titles consistent with placement
on the Prior Pictures and in advertising for each Licensed Picture in reasonable
and customary position and size. No other Distributor logo shall appear on
screen or in advertising. Each Subdistributor or licensee shall have the right
to accord itself a distribution credit (and logo) on screen and in advertising
for each Licensed Picture in reasonable and customary position and size as
provided in the applicable DWA-approved Distribution Servicing Agreement. DWA
shall have the right to designate all other credits on the Licensed Pictures,
provided credits for the Licensed Pictures shall include all credits to be
accorded pursuant to the DWA-approved Distribution Servicing Agreements and
Third Party Service Agreements. Each agreement with a Subdistributor or licensee
shall provide that such Subdistributor or licensee is contractually bound to
abide by all such credit obligations.
SECTION 20. OTHER ACTIVITIES. Subject to the provisions hereof and
Section 6 of the Separation Agreement, nothing herein shall limit in any way the
right of DWA, Distributor or Distributor Affiliate to engage in business
activities or endeavors of any kind or nature, including:
(i) Motion Picture production, distribution and
related businesses;
(ii) Television production and merchandising
(including video and computer games) exploiting the Licensed Pictures by DWA
(iii) Advertising;
(iv) Publishing;
(v) Interactive Media;
(vi) The sale or license of designs, stories,
characters, trademarks, trade names or other rights or properties;
68
<PAGE>
(vii) Ancillary market activities;
(viii) The co-financing or co-production or
acquisition of any other interest of any nature in any Motion Picture or other
property; and
(ix) The exercise of any right not expressly granted
hereunder.
SECTION 21. EXERCISE OF DISCRETION. Any consultations, consents and
approvals between the parties shall be performed in good faith and no party
shall unreasonably withhold, condition or delay any approval or consent
hereunder; provided, however, any determinations, discretion, designations,
elections, instructions and approvals granted to or retained by DWA solely with
respect to creative matters relating to the development, production and
distribution of the Licensed Pictures, including any and all Marketing Materials
(such as trailer and advertising content, key artwork, bonus materials for Video
Devices, clips to be included in any product reels), may be exercised by DWA in
its sole and absolute discretion.
SECTION 22. NO PARTNERSHIP OR THIRD PARTY BENEFIT. This Agreement does
not constitute Distributor and DWA as partners, joint venturers, or as each
other's agents or representatives (except as may be herein otherwise expressly
provided). This Agreement is not for the benefit of any third party and shall
not give any right or remedy to any such third party whether or not referred to
hereunder.
SECTION 23. INTEGRATION/FORMALITIES. This Agreement contains the entire
agreement and understanding between the parties relating to the subject matter
hereof and supersedes, cancels and replaces any prior understanding, writing or
agreement between the parties relating to such subject matter. This Agreement
may not be amended, modified or altered except by an instrument in writing duly
executed by the parties. The parties acknowledge that each was represented by
counsel in the negotiation and execution of this Agreement. No provision herein
shall be construed against any party by virtue of the activity of that party,
through its counsel or otherwise, in negotiating and drafting this Agreement.
SECTION 24. DISPUTE RESOLUTION.
a. The parties agree that any dispute to interpret or enforce,
or otherwise arising out of or relating to, this Agreement shall be determined
by binding arbitration according to the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"), provided always that: (a) the
arbitration shall be conducted before a single neutral arbitrator with at least
ten (10) years experience in the theatrical Motion Picture industry, appointed
by mutual agreement of the parties within five (5) business days from the date
the notice of arbitration is delivered by the petitioning party; (b) the parties
shall be entitled to discovery as provided in California Code of Civil Procedure
sections 1283.05 and 1283.1; (c) in deciding any such matter, the arbitrator
shall follow the substantive law of the State of California as it would be
applied by California courts; (d) either party may, without waiving its right to
arbitration, seek preliminary or interlocutory relief from a court of competent
jurisdiction; (e) all arbitration proceedings (including any discovery and other
evidence in connection therewith) shall be closed to the public and shall remain
confidential; and (f) arbitration awards hereunder may be entered and enforced
as provided in California Code of Civil Procedure sections 1285 et
69
<PAGE>
seq. If the arbitrator is not selected by mutual consent within five (5)
business days from the date the notice of arbitration is delivered by the
petitioning party, the rules of the AAA with respect to the selection of an
arbitrator shall apply. Notwithstanding the foregoing, before proceedings are
initiated hereunder, the Chief Executive Officer or Chief Operating Officer of
DWA and Distributor, or their designated representatives shall meet and in good
faith attempt to resolve the dispute.
b. Notwithstanding the foregoing:
(i) Any payment disputes submitted to binding
arbitration pursuant to Section 24.a above shall commence within ten (10)
business days from the date the notice is delivered by the petitioning party and
the arbitrator shall rule not later than thirty (30) days after the date the
notice is delivered. The hearing shall be conducted by the arbitrator for as
many days as the arbitrator determines to allow; provided, that the hearing
shall conclude, and the arbitrator shall rule, not later than thirty (30) days
after the date the notice is delivered. The arbitrator shall rule as to whether
or not amounts are owed to the petitioning party, and if so, the exact amount
owed to the petitioning party (taking into account the default interest and
other provisions contained in the Agreement). In such event, the non-petitioning
party shall have five (5) Business Days from the date of the arbitrator's ruling
to make such payment. In the event such payment is not made within the
aforementioned period, such failure shall constitute a breach of this Agreement
and the petitioning party may exercise all rights and remedies available under
Section 11 above.
(ii) Any disputes submitted to binding arbitration
pursuant to Section 24.a. above that affect the timely release of a Licensed
Picture for initial Theatrical Exhibition or initial Home Video Exhibition shall
commence within seven (7) Business Days from the date the notice is delivered by
the petitioning party and the arbitrator shall rule not later than ten (10)
Business Days after the date the notice is delivered. The hearing shall be
conducted by the arbitrator for as many days as the arbitrator determines to
allow; provided, that the hearing shall conclude, and the arbitrator shall rule,
not later than ten (10) Business Days after the date the notice is delivered.
c. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT TO
THE CONTRARY, AND EXCEPT AS PROVIDED BELOW, IN NO EVENT WILL EITHER PARTY BE
LIABLE FOR SPECIAL, INCIDENTAL, INDIRECT, COLLATERAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES OR LOST PROFITS SUFFERED BY AN INDEMNITEE, HOWEVER CAUSED AND ON ANY
THEORY OF LIABILITY, IN CONNECTION WITH ANY DAMAGES ARISING HEREUNDER; PROVIDED,
HOWEVER, THAT TO THE EXTENT EITHER PARTY IS REQUIRED TO PAY (A) ANY AMOUNT
ARISING OUT OF THE INDEMNITY SET FORTH IN SECTION 10 AND/OR (B)ANY SPECIAL,
INCIDENTAL, INDIRECT, COLLATERAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR LOST
PROFITS, IN EACH CASE, TO A THIRD PARTY IN CONNECTION WITH A THIRD PARTY CLAIM,
SUCH DAMAGES WILL CONSTITUTE DIRECT DAMAGES AND WILL NOT BE SUBJECT TO THE
LIMITATION SET FORTH IN THIS SECTION 24.c.; PROVIDED FURTHER IN NO EVENT SHALL
DWA BE LIABLE FOR ANY DISTRIBUTOR EXCLUDED LIABILITIES, AND IN NO EVENT SHALL
DISTRIBUTOR BE LIABLE FOR ANY DWA EXCLUDED LIABILITIES.
70
<PAGE>
SECTION 25. SEVERABILITY OF PROVISIONS. If any provision in this
Agreement shall be held by any court of competent jurisdiction to be illegal,
invalid or unenforceable, such provision shall be of no force or effect while
such infirmity shall exist, but such infirmity shall have no effect whatsoever
upon the binding force or effectiveness of any other provisions hereof unless
the parties otherwise agree. The parties shall endeavor in good faith
negotiations to replace the illegal, invalid or unenforceable provision with a
valid provision the economic effect of which comes as close as possible to that
of the illegal, invalid or unenforceable provision.
SECTION 26. WAIVER. No delay or failure to exercise any right hereunder
shall constitute a waiver of such right except in those instances where this
Agreement provides for specific notice and a period of time thereafter within
which to exercise a right, in which case failure to exercise such right within
the specified time period shall constitute a waiver thereof.
SECTION 27. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the state of California, applicable to
contracts entered into and to be fully performed in said state by residents
thereof. For purposes of enforcing, confirming or vacating an award under
Section 24. above, or in the event the provisions of Section 24. shall be held
invalid or unenforceable, only the California courts (state and federal) shall
have jurisdiction over controversies regarding or arising under this Agreement,
and if there is any matter which might be subject either to state or federal
jurisdiction, the parties agree that the matter shall be submitted to federal
jurisdiction. The parties specifically agree that the Superior Court of the
State of California, County of Los Angeles and the United States District Court
for the Central District of California shall have the personal jurisdiction over
them, and each of them, notwithstanding the fact that they may be citizens of
other states or countries. In this regard the parties agree that Los Angeles
County is a convenient forum.
SECTION 28. CONFIDENTIALITY. Except as may be required by law or NASD
or stock exchange rules, each party shall keep confidential all terms and
conditions contained herein. Distributor and DWA acknowledge that they will,
during the Term hereof, have access to, and acquire knowledge from, materials,
data and other information which is not accessible or known to the general
public ("Confidential Information"). Except as required by law or NASD or stock
exchange rules, or as may be required for the preparation of tax returns or
other government or legally required documents, or as reasonable necessary to
employees, agents, lawyers, accountants, auditors, bankers, consultants,
representative or investors of Distributor or DWA or their Affiliates for a bona
fide business purpose (who shall be similarly bound by these confidentiality
provisions), neither the Confidential Information nor any knowledge acquired by
Distributor or DWA, as the case may be, from such Confidential Information or
otherwise through its engagement hereunder shall be used, publicized or divulged
by the other to any other Person without the prior written consent of the
applicable party obtained in advance and in each instance. Nothing herein shall
prevent a party, or any employees, agents, lawyers, accountants, auditors,
bankers, consultants, representatives or investors of such party or its
Affiliates (the "Receiving Party") from using, disclosing, or authorizing the
disclosure of any information it receives in the course of performance of the
Agreement which:
a. was known to the Receiving Party prior to its disclosure by
the other party;
71
<PAGE>
b. is or becomes publicly available without default hereunder
by the Receiving Party;
c. is lawfully acquired by the Receiving Party from a source
which is not an agent or representative of the Receiving Party and is not under
any obligation to the other party regarding disclosure of such information;
d. is independently developed by the Receiving Party without
use of any of the other party's confidential information; or
e. is disclosed by the applicable party hereto to unaffiliated
third parties without confidential undertakings.
For the avoidance of doubt, Confidential Information as defined in this Section
28. shall not include any Information that the applicable party is obligated to
make available to any third party(ies) in the course of fulfilling its
obligations under this Agreement (e.g., Contingent Compensation statements).
SECTION 29. NOTICE OF REPRESENTATIVES. DWA will give Distributor
reasonable notice of DWA's appropriate contact person(s). Distributor will give
DWA reasonable notice of Distributor's appropriate contact person(s).
SECTION 30. PARAGRAPH HEADINGS. Paragraph headings and titles are
solely for convenience of reference and are not a part of this Agreement, nor
are they intended to aid or govern the interpretation of this Agreement.
SECTION 31. INTELLECTUAL PROPERTY LICENSE. DWA acknowledges and agrees
that the rights licensed to Distributor hereunder constitute "intellectual
property" as such term is defined in the Bankruptcy Code and that Distributor is
entitled to all of the rights of a licensee of intellectual property under
Section 365(n) of the Bankruptcy Code with respect to all of such licensed
rights.
SECTION 32. DISCLOSURE, COMPLIANCE AND REPORTING OBLIGATIONS.
Distributor shall provide DWA with such information, records or documentation as
DWA may reasonably request to permit DWA to comply with applicable laws
(including the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the Sarbanes-Oxley Act of 2002 and rules and regulations
promulgated under such Acts or any successor provisions) (including such
information, records and documentation and testing thereof as may be necessary
for Distributor and its management to comply with Section 404, entitled
"Management's Assessment of Internal Controls", of the Sarbanes-Oxley Act of
2002 and the rules and regulations promulgated thereunder or any successor
provisions).
Distributor shall provide to the independent public accountants of DWA
such information, records or documentation as DWA or such independent public
accountants may reasonably request (to the extent in Distributor's possession or
otherwise generally available to Distributor) to allow such independent public
accountants to complete audits and limited reviews of the financial statements
and other accounting or financial data or information of DWA (including such
information, records and documentation and testing thereof as may be necessary
72
<PAGE>
for such independent public accountants to provide the attestation to, and
report on, the internal control assessment made by DWA and its management
required under the Sarbanes-Oxley Act of 2002, the rules and regulations
promulgated thereunder or any successor provisions and the rules of the Public
Company Accounting Oversight Board).
Distributor shall correct as promptly as practicable any deficiencies
in books and records and associated controls and procedures relating to the
services provided hereunder that are identified by DWA in writing in reasonable
detail in connection with any internal control assessment, audit or similar
review or report conducted or to be conducted by DWA, its management or its
independent public accountants pursuant to the Sarbanes-Oxley Act of 2002 and
the rules and regulations promulgated thereunder or any successor provisions. If
at any time DWA reasonably determines that any changes are needed to be made to
Distributor's internal controls, and identifies such changes in reasonable
detail in writing, then Distributor shall work diligently to make such changes
as promptly as practicable. Distributor shall have no responsibility for
determining what changes or corrections are necessary and shall follow
instructions provided by DWA.
All direct and indirect costs and expenses relating to any of the
foregoing provisions of this Section 32. (including employee time required to
compile information or otherwise comply with this Section 32., changes to
systems maintained by Distributor to provide information in a specific format,
fees and expenses charged by auditors or other third parties, etc.) and all
actions required to be taken by Distributor pursuant to this Section 32. shall
be at the expense of DWA, except to the extent such action is required for
Distributor to be in compliance with the other terms of this Agreement.
The provisions of this Section 32. are subject to Section 4.1. of the
Services Agreement.
SECTION 33. LIMITATIONS ON DISTRIBUTOR RESPONSIBILITY. If the
Distributor is unable to perform its obligations hereunder because it does not
have the necessary assets because such assets were contributed to DWA pursuant
to the Separation Agreement, the parties hereto shall determine a mutually
acceptable arrangement to provide Distributor with the necessary access to such
assets and, until such access is provided, the Distributor's failure to perform
the applicable obligations hereunder shall not constitute a breach of this
Agreement.
SECTION 34. NOTICES. All notices hereunder shall be in writing and
shall be served by private delivery services, and shall be deemed given on the
date delivered to the following addresses (or such other addresses as such party
may hereafter designate in writing):
(i) If to DWA:
DreamWorks Animation SKG, Inc.
1000 Flower Street
Glendale, California 91201
Attention: General Counsel
73
<PAGE>
(ii) If to Distributor:
DreamWorks L.L.C.
1000 Flower Street
Glendale, California 91201
Attention: General Counsel
SECTION 35. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which, taken
together, shall constitute one and the same instrument, which may be
sufficiently evidenced by one counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
DREAMWORKS L.L.C.
By
--------------------------------------
Its
-------------------------------------
DREAMWORKS ANIMATION SKG, INC.
By
--------------------------------------
Its
-------------------------------------
74